Tech rally welcomed

Analysts say the gains won't last
without better earnings

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By Amy Baldwin
Associated Press

NEW YORK >> Tech stock believers got some validation this past week -- an analyst upgrade of Intel, an upbeat outlook from Dell Computer and promises of cost cuts at IBM. Investors welcomed the news by giving the battered technology sector its first five-session winning streak since early October.

Whether the gains have long-term staying power still depends on the promise of better business becoming a reality.

"I get asked all the time, 'Is the tech wreck over?' We're getting close, but I don't think we're there yet," Steve Salopek, technology analyst for Banc One Investment Advisors, said at a recent luncheon in New York.

Salopek noted that this time of the year historically hasn't been good for technology. Tech stock prices make little upward progress in the summer as tech demand slows and doesn't pick up until the third or fourth quarter.

Sure, there will be rallies, especially following big selloffs, but they won't last. The consensus among analysts is that this past week, when the Nasdaq composite index rose all five days for an 8.8 percent gain, wasn't the start of an upward trend.

It was the first time the Nasdaq claimed five straight advances since early October, and the index's biggest weekly percentage gain since the week ended April 20, 2001, when it rose 10.3 percent.

"Is this the beginning of a major upleg? I just don't think so," said Charles White, portfolio manager for Avatar Associates. "Until we get some real, palpable evidence of a second-half (2002) recovery, and capital spending in technology resumes, we are going to be trapped in a trading range."

Many analysts anticipate that the Nasdaq will be range-bound in the coming weeks, budging little in either direction. White expects the tech-focused index to hover around 1,750.

Rallies like the one Wall Street enjoyed this past week can't continue much longer, analysts say, as it was based mostly on stock prices made more attractive by a protracted decline. A week ago, following two months of selling, the Nasdaq and other major market indicators were at levels not seen since October.

So technology shares were poised to climb higher even before the week's events: An analyst at Robertson Stephens on Tuesday upgraded Intel, while IBM chief executive Samuel Palmisano told analysts the company would cut costs. And Wednesday, Dell reported first-quarter profits that were a penny a share higher than expectations, and also projected second-quarter earnings to be a penny more than forecasts.

White said the buying seemed to result more from the market's own dynamics than these developments. "We have had a couple of pieces of reasonably decent good news but nothing that is going to blow you out of your chair," he said.

For tech stock prices to improve over the long run, profits have to rebound, and for that to happen companies have to start spending on technology again. Analysts expect spending to start picking up late this year but to improve to a greater degree in 2003.

That's not all that the tech sector is awaiting. After 20 years of a tech revolution that included personal computers, networking equipment and Internet services, "We're in a dead spot waiting for the new tech wave," Salopek said.

It could take the industry another two or three years to identify the next big innovation that will be a powerful driver of profits, he said.

It was a positive week for all the market's major indexes.

The Nasdaq had a weekly gain of 140.54 points, or 8.8 percent, the index's first weekly advance in four weeks. The Nasdaq closed at 1,741.39 after yesterday's gain of 10.95.

The Dow Jones industrials rose 413.16, or 4.2 percent, for the week, after advancing 63.87 to 10,353.08 yesterday.

For the week, the Standard & Poor's 500 index gained 51.60, or 4.9 percent, having fallen the three previous weeks. The S&P closed yesterday at 1,106.59 after rising 8.36.

The Russell 2000 index, the barometer of smaller company stocks, had a weekly advance of 16.21, or 3.3 percent. Yesterday, the Russell rose 1.54 to 508.94.

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 $10.474 trillion, off $456.710 billion from the previous week. A year ago, the index was $11.923 trillion.