While volatility continues in Nasdaq stocks, sentiment is turning more positive as it appears much o...
While volatility continues in Nasdaq stocks, sentiment is turning more positive as it appears much of the bad news from the sector has already been discounted by investors.
Nasdaq started at just over 2700 on 5 December and ended up 188 points higher, reaching 2889. Nasdaq started the year at 4130 and its historic high has been 5047 recorded on the 10 March this year.
Rupert Della Porta, senior fund manager at Aberdeen Asset Managers says the rise in early December was largely caused by Alan Greenspan's comments indicating the Federal Reserve may move towards a neutral monetary policy on interest rates in the wake of the US economy slowing. Della Porta also points out that Cisco's reiteration of its growth targets may have had some effect.
"There was also a sense that the election fiasco was coming to its denouement," he says. "In addition, cash in aggressive growth mutual funds, normally between 2% and 4% crept up to 6% and getting to the end of the year it needs to be lower than that. Nasdaq had been down 50% since its peak and it was due for a rebound."
While there is still concern about profit warnings, it is felt that technology companies are now more attractively valued, which was probably an additional cause for the rally, according to Mick Brewis, head of US equities at Baillie Gifford.
Fund managers agree that concerns remain about profit warnings, with more difficult data to get through in the next few months,
"Fourth quarter earnings are a source of anxiety to investors now," says Della Porta. "This is because of the doubt about business trends in the PC market, the telecom equipment market and the semiconductor market. No doubt there will be more disappointments."
In addition, Della Porta points out that a new directive from the Securities and Exchange Commission, Regulation Fair Disclosure, will prohibit companies from selectively disclosing information to investors and analysts that which they will not disclose to anyone else.
Instead companies will have to wait to give out information until their quarterly earnings are announced, he says.
"If people do not know what is going on, they will automatically fear the worst. This contributes to the fear of profit warnings as sentiment is becoming overly bearish, particularly with the Nasdaq."
The weakest area of the technology market recently has been PC sales. In recent weeks there have been profit warnings from both Gateway and Intel.
However, Brewis points out that Intel's shares did not suffer with the news of that its fourth quarter sales were likely to be disappointing. Instead the share price rose almost 8%, in dollar terms. The stock has dropped some 57% since August and is trading at 19 times expected earnings.
"This shows that maybe a lot of the bad news in the technology sector and the worries about profit warnings have already been built into the price," Brewis adds. Baillie Gifford has holdings in Cisco and Sun Microsystems, both of which are doing well on the build-out of internet infrastructure, Brewis says. Their growth has been strong all year and has remained strong.
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