Nasdaq rally may signal
recovery is imminent

Upbeat comments from Cisco and Oracle
help put the tech-heavy index above 2,000

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By Amy Baldwin
Associated Press

NEW YORK >> The Dow Jones industrials' return to 10,000 certainly is encouraging, but many on Wall Street believe the Nasdaq's recapture of 2,000 is a more important sign that the economy is poised to recover.

While blue chips have stayed fairly strong during the protracted economic slump, riskier tech shares have been pummeled. And, for the economy and stock market to improve, analysts say, technology must turn around first.

"Tech is going to be on the leading end of any rally that is based upon the presumption that the economy will continue to improve into next year," said Kevin Caron, associate strategist for Gruntal & Co.

Yearning to hear something optimistic from tech companies, investors sent the sector soaring Tuesday and Wednesday on upbeat comments from Cisco Systems and Oracle. Cisco Chief Executive John Chamber said Tuesday the networking company's November orders met expectations and that he feels the worst of the downturn is over.

Software maker Oracle CEO Larry Ellison said there were signs that business had improved and stabilized.

The Cisco and Oracle news helped the Dow and the Nasdaq composite index to reclaim their milestones on Wednesday. The Dow, which was boosted in large part by its tech components, closed above 10,000 for the first time since Sept. 5; the Nasdaq -- where Cisco and Oracle were the most heavily traded issues -- finished above 2,000 for first time since Aug. 7.

"There is light at the end of the tunnel, and so the obvious question is: Where do you go for the best returns? Cyclicals like technology are a natural," Caron said.

Looking to technology for leadership isn't new on Wall Street. When the economy founders, investors typically focus on safer stocks in more stable industries such as health care and consumer products, and less on cyclical stocks, such as technology, whose performance follows economic conditions. And when the business outlook improves, investors head back into economically sensitive stocks, which reward them with bigger returns over the long term.

Investors reason that although consumers can cut back on their purchases of computers, cars and cell phones, their need for prescription drugs and toothpaste will stay the same. That's why the market has been eager for word from tech companies that excess inventories of chips, software and computers have been reduced and that demand has picked back up.

Chip makers Intel and Applied Micro Devices offered hope Thursday when they raised their fourth-quarter forecasts based on strong demand.

"This is a typical kind of recovery. I am also encouraged by the fact that the larger tech companies are the ones leading the way," Caron said.

With high-profile tech companies saying they see business improving, investors believe the economy is about to trend higher again. And, they don't want to miss out on Wall Street's next upturn. However, analysts said investors should be cautious until there are more signs of the economy's direction and until more companies offer good news.

"Have we forgotten the lessons of 2000?" said Richard A. Dickson, technical analyst for Hilliard Lyons in Louisville, Ky., referring to the big rise and subsequent fall of the tech sector.

Indeed, the Nasdaq still is about 60 percent off its record close of 5,048.62 achieved on March 10, 2000. For the week, the Nasdaq posted the strongest performance of the market's major indicators. The Nasdaq had a weekly gain of 90.68 points, or 4.7 percent, despite declining 33.01 yesterday to 2,021.26.

The Dow rose 197.90, or 2.0 percent, for the week, after falling 49.68 to 10,049.46 yesterday. The Standard & Poor's 500 index finished the week up 18.86, or 1.7 percent, after slipping 8.79 to 1,158.31 yesterday.