Quite A Feat
No wonder Alan
Greenspan was smiling during
his testimony on Capitol Hill last Thursday. It continues to look more and more
like he pulled of the trickiest economic challenge of all time. He popped the
tech bubble, but still managed to keep the consumer and housing sectors afloat
thanks to the massive flood of liquidity and low interest rates. The eleven
rapid (almost panicky) rate cuts that drove the Fed Funds rate to 1.75%, their
lowest levels in 40 years, are now looking pretty certain to have averted a deep
and prolonged global recession.
In addition, somehow the Dow held steady enough to be about flat with where it
was more than three years ago. You would hardly notice the damage until you
looked at the $4 trillion in stock market values that vanished as well as the
surge in unemployment from around 4% to nearly 6%. It wasn’t easy, and it sure
wasn’t pretty, but you have to admit that Greenspan & Co. pulled off quite a
feat.
Friday’s release of the February employment report was really the icing on the
cake for Greenspan as the unemployment level actually FELL
for the first time in almost a year, suggesting once and for all that those
eleven aggressive rate cuts are finally gaining traction. Economists were
expecting unemployment to rise to 5.8% from last month’s 5.6%, but the drop to
5.5% surprised Wall Street and drew in the buyers. The employment report joins
the recent slew of good economic news that certainly makes a good case for the
bulls.
On To Tech
So what does all of the recent economic sunshine mean for the tech sector? Well,
the scorching Semiconductor group
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seems to be saying the tech comeback is clearly at hand. The SOX took off last
Friday following the solid industrial production numbers and have basically not
looked back. They hit their highest levels since July on Friday and as in the
past will likely be the pace car for any potential tech recovery.
The action in the SOX has been impressive, but the battered index still has a
long, long way to go to ever get back to those old glory-day-levels of two years
ago when the SOX peaked at 133.73. Among strongest SOX components breaking out
to new, multi-month highs were KLA Tencor
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Novellus
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Instruments
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Materials
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Last Friday’s SOX burst back above its 200-day moving average was a pretty good
indicator that things were looking up for tech. It was great to see the Nasdaq
action Friday that helped it join the SOX, Dow
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back above its 200-day moving average for the first time since January. That
200-day average has been the thorn on the Nasdaq’s paw since the tech collapse
began two years ago so perhaps this time it will hold above the 200-day and bury
the two-year bear in tech.
As the recent round of rosy economic numbers has shown, the odds are definitely
favoring a solid economic recovery. Yes, even the capital spending collapse will
eventually end, and companies again will buy technology (since they have stopped
for TWO YEARS!) Again the SOX are worth watching as
are some of the software leaders which include Symantec
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These companies continue to look strong both from a fundamental and technical
basis and will definitely benefit as tech spending returns.