Tech turnaround
brings out skeptics

Bears call it an oversold rebound
while bulls are cheered by positive
outlooks from Cisco and Dell

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By Lisa Singhania
Associated Press

NEW YORK >> Tech stocks are re-emerging as the force that can move the stock market and maybe make investors get a little ahead of themselves.

Investors sent the beleaguered sector soaring this past week on upbeat outlooks from Cisco and Dell and largely shrugged off warnings from Sun Microsystems, Advanced Micro Devices and Gateway.

Despite the market's renewed enthusiasm, analysts are still skeptical about the sector's prospects for the time being.

"I think this is a bear-market rally," said Steve Milunovich, Merrill Lynch's technology strategist. "This is a rebound from oversold levels that happened after the terrorist attack, not the beginning of anything new."

Indeed, much of the week's buying appears attributable to an expected snapback from the massive sell-off that followed the Sept. 11 terrorist attacks. The tech-dominated Nasdaq composite index, which lost 272 points in the first week of trading after the attacks, remains 90 points below its Sept. 10 close.

But the market did hear the first good news from high-tech firms in quite a while when Dell and Cisco both reaffirmed their quarterly outlooks. Warnings yesterday from Sun Microsystems, Gateway and Advanced Micro Devices slowed but didn't stop the rally, but the analysts weren't bowled over.

"Quite obviously the good news is particular to those companies and does not seem to be universally shared," said Ronald J. Hill, investment strategist at Brown Brothers Harriman.

At the same time, though, there might be some reasons for more optimism.

Interest rates are at their lowest level in nearly 40 years, because of the nine rate cuts this year by the Federal Reserve, including two within the last three weeks.

Meanwhile, President Bush is proposing an economic stimulus program of as much as $75 billion in hopes of helping an already weak economy recover from the further losses by the Sept. 11 terrorist attacks on the Pentagon and the World Trade Center. Stocks spurted higher during the week on Wednesday and yesterday when Bush made televised remarks about the plan.

"You're firing with both the barrels on the monetary and fiscal fronts, and that should help shore up confidence," said Charles Reinhard, senior U.S. investment strategist at Lehman Brothers. "Last April, when we saw another tech rebound that ultimately failed, the fiscal and monetary policy wasn't aggressive enough to keep things moving. Now it is."

Reinhard contends tech stocks are also relatively cheap now -- especially if you believe the theory that tech will lead Wall Street out of a downturn and then rally faster than the broader market once a recovery is under way.

But stocks have a history of rallying prematurely and the market remains under significant pressure with third-quarter earnings reports about to begin and the nation's political and economic uncertainty far from being resolved.

Yesterday, the Labor Department reported unemployment was 4.9 percent in September as American businesses shed 199,000 jobs, the largest job loss in more than a decade.

Fear about further terrorist attacks and the effect the U.S. response to the Sept. 11 assaults could also halt a turnaround.

"I think it's crucial to get through this earnings season and get some sense of what the fourth quarter will be like and then maybe we can talk about a rebound," said Hill, the Brown Brothers Harriman strategist.

Milunovich, the Merrill Lynch strategist, is less confident.

"Prior to the terrorist attack, there was thought that by the second quarter you would begin to see a pickup in capital spending on technology products," he said.

"Now that's deferred to the second half of 2002 and maybe even until 2003."

For the week, the Dow Jones industrials rose 272.21, or 3.1 percent, for the week after advancing 58.89 to 9,119.77 yesterday.

The Nasdaq composite index gained 106.50, or 7.1 percent, for the week after rising 7.99 yesterday to 1,605.30. The Standard & Poor's 500 ended the week up 30.44 or 2.9 percent, after closing up 1.75 yesterday at 1,071.38.

The Russell 2000 index rose 2.5 percent or 10.10 points for the week, finishing yesterday down 2.07 at 414.97.

The Wilshire Associates Equity Index -- which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues -- ended the week at $9.837 trillion, up $274.180 billion from last week. A year ago the index was $13.142 trillion.