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Tech lifts market, but analysts urge caution

By Associated Press
Published September 21, 2003

NEW YORK - When the Nasdaq composite index closed above 1,900 for the first time in 18 months last week, it was a clear sign that investors are steadily regaining their confidence in the stock market.

Institutional investors such as those who manage mutual funds are particularly interested in owning and buying the technology stocks that dominate the Nasdaq, said Michael Murphy, head trader at Wachovia Securities in Baltimore. With only one week left in the third quarter, these investors can't afford to pass up high-tech in favor of cash for fear of disappointing shareholders with more modest returns.

But why tech and not blue chips? Technology, so beaten down during the bear market, has the most to gain as the economy strengthens, he said.

"If you are going to have a bull market, tech's going to take it," Murphy said.

Indeed, the collapse of the dot-com boom started Wall Street's descent into a three-year slump, and it was tech stocks that suffered the worst losses. But analysts are still advising caution, noting that companies' fundamentals might not be strong to justify high-tech's big gains.

"It was under-owned at the lows and now it is getting overowned," said Gary Kaltbaum, president of Investors' Edge Partners, a money management firm in Orlando. "You have to be very careful about tech. It is overbought and overowned and too many people are talking about it after the move up. That's not to say it won't (continue to) move up, but the rate of the move is going to slow down."

Technical factors don't favor technology making more big moves in the near future, Kaltbaum said.

And, he could be right, considering that the Nasdaq has climbed nearly 50 percent since the market's March 11 lows, while the Dow Jones Industrial Average has risen about 28 percent and the Standard & Poor's 500 index has advanced about 29 percent.

So far this year, the Nasdaq is up nearly 43 percent. The Dow is up nearly 16 percent; the S&P, up nearly 18 percent.

"This is not necessarily confidence in ... the companies doing better, but the market doing better," Kaltbaum said.

Fundamentally, there has been evidence that some tech companies continue to struggle and that could bode ill for their shares. Earlier this month, Oracle Corp., for example, reported disappointing sales of new software licenses.

This past week, Sun Microsystems Inc. said it was trimming another 3 percent of its work force, amounting to an estimated 1,080 jobs, to improve its performance and its shares rose on that news. But for tech issues to continue to rise, analysts say it must be because earnings are improving based on demand increasing, not on cost-cutting measures.

Still, Murphy, the Wachovia trader, said tech companies are showing signs of real strengthening.

"You are starting to see good news in tech," he said. "These guys are starting to show good numbers and capital spending on tech is increasing."

Among the encouraging news out of tech so far in September: Chipmaker Intel Corp. increased its third-quarter revenue outlook and softwaremaker Adobe Systems Inc. reported better-than-expected fiscal third-quarter profits.

And Research in Motion Ltd., the maker of BlackBerry pagers, raised its fiscal second-quarter earnings estimate.

[Last modified September 21, 2003, 02:03:13]

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