Star-Bulletin news services
A correction would spur
buying but it’s not clear
if one is due
NEW YORK >> The economy and corporate earnings have shown consistent signs of improvement, but the stock market's tendency to falter easily has some wondering if Wall Street -- or at least the technology sector -- might be in the early stages of a correction.
Noting how far stocks have come over the last year, some analysts say a pullback is needed for the market's long-term well-being, especially in the tech sector, where share prices have seemed expensive for some time.
The Nasdaq composite index roared back to life in 2003 with a 50 percent advance; it catapulted another 7.5 percent by Jan. 26, only to fall sharply after a new policy statement from the Federal Reserve led some to believe an interest rate hike could happen soon. Its 2004 advance currently stands at a more modest 1.7 percent.
"In the big picture, our view for 2004 as a whole is summed up in two words: leveling off," said Bryan Piskorowski, market analyst at Wachovia Securities.
Many theorists define a correction as a drop of 10 percent from a recent high, so Wall Street's recent slippage is still far short of that. But it's entirely possible "a rolling correction" has shaped the performance of individual sectors over the last 11 months, Piskorowski said.
With all the earnings news and upbeat economic data taken into account, and with the knowledge that interest rates will inevitably rise, "the market is looking for the next catalyst to propel itself higher or lower," said Stephen Sachs, director of trading at Rydex Investments. And investors haven't found much to look forward to.
"Guidance has not been that good on a company-specific level, and that really holds true for tech," Sachs said. "If we could get a 10 to 15 percent pullback, particularly in the broader tech sectors, frankly it might be good for the overall market. I'd be a buyer at that level."
Of all parts of the market, traders say this is the area where investors are most eager to grab profits when they can, with software and semiconductors taking the brunt of selling. Although some still see opportunities in communications and equipment companies, flows of new money into the tech sector appear to be declining.
But that doesn't necessarily mean a correction is afoot. Investors may simply be shifting assets away from riskier areas where they'd been overweight before, said Brian G. Belski, market strategist at Piper Jaffray. Rather than signaling a correction, this shift may be a sign that investors are seeking to diversify holdings.
"You have to step back a little bit ... I don't think the Nasdaq's drop over the last month means it's time to jump up and down and say the rally's over," Belski said. "There's still a lot of buying interest. If we were in a correction, we'd be seeing a more significant reversal of that trend."
To Belski, who believes stocks, including techs, will surprise investors this year with continued upward movement, the most encouraging signal right now is how much caution investors are showing.
"We have nowhere near the euphoria or cockiness that we saw in 2000, and that's very, very healthy," he said.
The true test for the market is yet to come, said Piskorowski, of Wachovia. After all the Bush administration's tax incentives run their course and interest rates rise, investors will be watching closely to see how the economy fairs under its own steam. Until then, they may feel the market is in a "sweet spot," he said.
"I think that's why you're seeing so much sideways movement," Piskorowski said. "People are constantly feeling this might be as good as it gets."
The Dow Jones industrials ended the week down 8.82, or 0.1 percent, finishing at 10,619.03. The Standard & Poor's 500 index lost 1.70, or 0.2 percent, to close at 1,144.11. The Nasdaq shed 15.63, or 0.8 percent, during the week, closing yesterday at 2,037.93.
STOCK QUOTES/CHARTS/DATA
