Wall Street Beat: Glimmers of Confidence Buoy Tech
Questions about the Obama administration's plans to shore up the financial sector and worries about declining technology sales continue, but technology investors are showing signs that they are looking ahead to the end of the recession.
The Nasdaq Composite Index, weighted with tech stocks, has on the whole made gains since it hit a seven-year low of 1268 on March 9. The index, however, has been turbulent as investors absorb a wide range of sometimes-conflicting information.
On Monday, for example, markets surged after details were revealed about the Obama administration's plan for a private-public effort to buy up banks' so-called toxic assets. On Tuesday, the Nasdaq and other exchanges slumped again as critics suggested that the plan puts taxpayer money at risk.
On Thursday, the U.S. government issued a final update on fourth-quarter GDP (gross domestic product), reporting that the total value of goods and services generated in the country declined at an annual rate of 6.3 percent compared to its last estimate of a 6.2 percent decline. However, economists had been forecasting the report to show a drop of 6.5 percent.
Also on Thursday, the Labor Department reported that initial claims for state unemployment benefits rose 8,000 to 652,000 last week and total claims rose to a record high over 5.5 million, indicating the recession continues to hit the job market.
Throughout all this, signs of confidence in technology are beginning to show. One bright spot was consumer electronics retailer Best Buy's fourth-quarter report Thursday, which showed the company generated net income of US$570 million for the period, down from $737 million one year earlier but above the expectations of market analysts.
Best Buy attributed some of the gains to better gross margins on computer sales. "We remain focused on what matters to us -- helping customers get what they want out of technology," said Brian Dunn, president and chief operating officer of the company, in a statement
Best Buy shares closed at $37.67 for the day, up by $4.21, as the Nasdaq gained 58 points, or 4 percent, to close at 1,587. Shares in a broad range of IT companies also rose, led by large vendors such as Hewlett-Packard, which jumped $2.19 to $33.20, and Intel, which rose $0.88 to $15.82.
Surprisingly, Research in Motion surged as well, after getting hit with a downgrade by JPMorgan earlier in the week. JPMorgan analyst Ehud Gelblum downgraded the stock to "underweight" from "overweight," noting that as RIM enters the consumer market it will run into more competition from phone giants such as Nokia, during a year when mobile-phone sales are expected to slump overall. Nevertheless RIM rode the market surge, with shares jumping by $2.12 Thursday to close at $45.
Consumer confidence in the economy in March hit its highest level in more than a year, according to figures released Tuesday by the Consumer Electronics Association (CEA) and media company CNET. The CEA-CNET Index of Consumer Expectations (ICE), based on consumer surveys, grew to its highest level since February 2008, reaching 173.1 in March.
"With recent increases in the stock market and some signs of firming in the real estate market, consumers are beginning to indicate they'll be better off financially over the next year," said Shawn DuBravac, CEA's economist and director of research, in a statement. "Still, until consumers are more confident in an economic recovery, we expect consumer spending to remain muted."
On the vendor side, IT companies, bracing for a continued slump in spending on IT, continue to make cuts.
IBM confirmed Thursday it is notifying employees that some jobs are being eliminated, though it declined to comment on the number of the cuts.The Wall Street Journal reported that IBM is planning to lay off about 5,000 U.S. employees, as jobs are ramped up in India.
Intel on Monday said it has frozen salaries of employees across the company in an effort to reduce spending and control costs.
Semiconductor maker Sanyo Electric on Tuesday cut its earnings forecast for the second time in two months, forecasting a yearly net loss of 90 billion yen ($927 million).
Whether investor confidence continues to strengthen will depend to a large degree on the next round of quarterly earnings reports, due out next month. RIM, for example, will report next Thursday.
Also next Thursday, the so-called G-20 leading industrial nations will be meeting in the UK. A global, coordinated economic stimulus plan would be sure to further boost confidence among consumers and businesses.