NEW YORK (CNN/Money) - Wall Streeters were donning their old black turtlenecks Wednesday, talking knowingly about things like vortals (those are vertically integrated Internet portals, if you forgot) and wondering if they could get away with putting out research notes advising clients to "back up the truck" again.
Tech is back, baby.
If not for the long term, at least for the moment. Tuesday's better-than-expected results from Intel and Microsoft put the market into a buying mood and tech sector shares rallied. With hopes that the economy is on the mend, investors are (again) envisioning a scenario where tech leads the way in a brand new market.
"We got a decent tone to the market here this morning," said D.A. Davidson director of institutional trading Jim Volk, "I'm not convinced you shouldn't sell these rallies."
It's easy to criticize. Companies beating estimates by a couple of cents a share, as both Intel and Microsoft did, should hardly be news on Wall Street, where the game has always been bringing down the bar of expectations to the point where you can easily clear it. Intel's sales were better than expected, yes, but it had warned a month ago that they'd be soft. They came in at $6.75 billion, the exact midpoint of the range it offered when it released fourth-quarter results back in January.
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Nor is the scenario where the economy rebounds, leading to a brave new world for tech, a very sure thing. For one thing, recent good vibes on the economy still look more like a technical snapback from the war-ridden weakness of February and March. For another, companies are still in the process of rebuilding balance sheets after their late-1990s nuttiness. Why, exactly, are they going to start buying tech left and right again?
Then there's valuations. Yes, the price-to-earnings ratio on the S&P 500 tech sector is half what it was in March 2000. Which is nice. But at 37, it ain't exactly cheap.
But even bears have to concede that the tech outlook looks better than it has since back in its halcyon days. In Tuesday's miserable industrial production and capacity utilization report for March, tech offered a glimmer of hope. Tech output grew by 1.6 percent, twice February's level. Capacity utilization for computers and peripheral equipment rose to 79 percent -- its highest level since 2000. Clearly, many of the old excesses have been worked out of the industry.
Meantime, the Nasdaq has been not just the best performer of the three major indexes, but the healthiest. Back in March, when the Dow and the S&P 500 dipped down near their October lows, the Nasdaq didn't get even close, suggesting that October really was the tech stocks' nadir.
And trading volume on the Nasdaq Stock Market has softened. Recently, it often even falls below New York Stock Exchange volume -- like Tuesday, when Nasdaq volume was 1.15 billion shares compared to the NYSE's 1.42 billion.
Back in the olden days (like a decade ago) traders used to think that whenever Nasdaq volume rose above NYSE volume it was a sign that the market had become speculative. Then Nasdaq volume shot higher, along with tech stocks, and the old indicator didn't look so good anymore. Maybe the fall in Nasdaq volume means that the old speculation has been wrung out of the market.
-- Justin Lahart is a senior writer at CNN/Money covering markets and investing.
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