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Commentary > Bid and Ask
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Say nice things about tech
It's easy to criticize the sector, but it really looks better than it has in years.
April 17, 2003: 6:50 PM EDT
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Wall Streeters have been donning their old black mock turtlenecks, 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 brought out the buyers -- in a week when the market at large struggled to make headway, tech shares did just fine, thank you. With hopes that the economy is on the mend, investors are (again) envisioning a scenario where tech leads the way in a brand new bull market.

It's an easy position to criticize. (And my colleague Paul LaMonica does just that in this story.) 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 snap-back 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 (halcyon daze, some might put it). 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. Within the context of the lousy overall economy, this pickup suggests that companies may again be buying tech -- not necessarily because they want to, but because they have to. Much of the tech equipment that Corporate America has in place was bought during the pre-Y2K buying binge. That equipment is getting long in the tooth -- and needs to be replaced.

At the same time, capacity utilization at computer companies -- the extent to which they're operating at full capacity -- rose to 79 percent. That's the highest level since June 2000 and is a sign that 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 even get 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 -- happened twice in the last week

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.  Top of page


-- Justin Lahart is a senior writer at CNN/Money covering markets and investing.




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.