Are Tech Earnings Bouncing Back?
Weak economic numbers combined with some favorable comments in the tech sector to help spark a thundering rally in the Nasdaq that lifted it
3.6% in Tuesday trade.
Blue chips joined the party as well, with the Dow and S&P 500 tacking on
1.0% and 1.3%, respectively.
Volume was moderate, but it did pick up sharply compared to the past few
days. Nasdaq volume topped 1.8 billion shares while NYSE volume was a
respectable 1.1 billion shares.
A weaker-than-expected non-farm productivity number as well as a
larger-than-expected decline for April’s factory orders contributed to the idea
that more Fed rate cuts might be on the way.
Non-farm productivity fell 1.2% in April which was a weaker showing than the
anticipated 0.7% decline. The drop was the largest in eight years.
Factory orders for April fell by 3.0%, which was more than the 2.5% decline
analysts had expected, and again, the weakness evident in the economy increases
the likelihood of more Fed interest rate cuts.
Some analysts commented that the the string of Fed rate cuts this year will
most likely provide the stimulus needed to kick-start the economy and avoid
recession.
"With liquidity rising in the system, we believe investors will ‘look
across the earnings/economic valley’ and buy stocks this summer.
We are of the camp that expects a ‘U’-shaped rather than a ‘V’-shaped
economic recovery," said Paul Rabbitt, President, RabbittAnalystics.com.
"The economy will show signs of
recovery within another 3-6 months and earnings recovery will follow, lagging
the economy by another 3 months," he added.
Leading sectors were semiconductor
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up 5.0%, computer technology
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up 2.2%, and forest and paper products
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Tops in the SOX were Xilinx
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Lattice Semiconductor
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In addition to motivating the Nasdaq, the SOX closed convincingly back above
its 50-day moving average after falling below it last week.
Among tech’s big winners was bellwether Cisco Systems
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the recipient of positive comments from Morgan Stanley. Cisco rose to 1.81 or 9%
to 21.54.
Also putting in a solid day was Microsoft
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recent high-level consolidation and traded up to its highest level since August
2000. Softie finished the day up 1.82 to 72.60 on average volume.
In the biotechs, Protein Design Labs
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breakout. PDLI added 7.73 or 9% to 90.39 on more than double average volume to
close at its highest level since late December.
Leading the Dow were Intel
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Alcoa
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Dow losers were J.P. Morgan
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1.0%.
Looking ahead, traders will be eyeballing the weekly unemployment numbers
which will be released on Thursday at 8:30 AM ET. Last week’s total was a steep
419,000.