Rallies in Techs, Asia Boost Hopes
Major technology stocks rallied sharply on Wednesday, raising new hopes that the tech sector--one of the first industries to suffer from Asia’s economic downturn in 1997--may be signaling that the worst of the fallout is over.
IBM Corp. shares jumped $4.81 to $142.69--an all-time high--on the heels of the company’s third-quarter earnings report on Tuesday, which was better than expected.
Also, Microsoft Corp. surged $6.19 to $106.44 in the wake of its surprisingly strong earnings report. And Dell Computer rose $3.63 to $56.94 after the company reiterated that demand for personal computers “is solid, and we expect it will continue that way into the foreseeable future.”
The gains in leading tech shares helped push the Nasdaq composite index up 2.2% to 1,674.75 on Wednesday, even though the Dow Jones industrials edged up just 13.38 points, or 0.2%, to 8,519.23.
Tech stocks’ resurgence has paced the market’s rebound in recent weeks. The SOX index of major semiconductor stocks, for example, has soared 27% since Oct. 8. The Morgan Stanley high-tech stock index, which tracks leading tech shares, has jumped 22% since that date.
In the same period, the Dow has gained 10%.
“Every major technology company has reported an upside [earnings] surprise,” said Phil Orlando, chief investment officer at Value Line Asset Management, which oversees $6 billion.
That has boosted investor sentiment because overall corporate earnings were expected to be weak in the third quarter. “The myth that earnings are falling apart is not being substantiated,” Orlando argued.
Executives at Microsoft are famous for their conservative forecasts. Yet in a conference call with analysts Tuesday, Microsoft Chief Financial Officer Greg Maffei advised them to raise their fourth-quarter earnings forecasts by 5 cents a share.
Many tech companies, in particular semiconductor firms, were among the first to be slammed by weaker orders as the effects of the Asian economic crisis began to ripple to U.S. shores in summer-1997.
Thus, a bottoming of the semiconductor industry’s cyclical downturn--if that is what’s occurring--could be a sign that the tech business in general has seen the worst of Asia’s effects.
Computer chip giant Motorola, reporting better-than-expected earnings on Oct. 6, said that while it expects an 11% decline in worldwide semiconductor sales this year, it sees 7% to 9% growth in 1999 sales. Its stock has gained 27% since Oct. 5, to $48.94.
Coincident with the sharp rebound in many tech stocks recently has been a stunning bounce in many battered Asian stock markets from their September lows. The South Korean market, for example, has jumped 30% since Sept. 23, as the Japanese yen has strengthened, lessening the devaluation pressure on other Asian currencies.
The Hong Kong market, for its part, has leaped 29% since that date.
Still, those markets--and many U.S. tech stocks--remain far off their peak levels reached in 1997 or earlier this year. Many analysts say it’s too early to call a turn either in the Asian crisis or the fortunes of many tech firms.
The SOX semiconductor index, for example, rallied in late winter, only to plunge again in spring and again in August.
A growing worry is that capital spending by U.S. companies could slow in 1999--reducing overall tech equipment sales even if sales to Asia stabilize or tick higher.
But for now, the rush back into key tech shares such as IBM, Microsoft, Dell, Intel and others indicates that more investors are willing to bet that the business outlook is getting brighter rather than dimmer.
