Tech Strong As U.S. Stocks Hit 2-Year Highs

Spurred by a Federal Reserve plan to buy bonds, U.S. exchanges hit their highest point since 2008 Thursday, with technology vendors riding especially high in the wake of strong third-quarter earnings.

By Marc Ferranti
Thu, November 04, 2010

IDG News Service — Spurred by a Federal Reserve plan to buy bonds, U.S. exchanges hit their highest point since 2008 Thursday, with technology vendors riding especially high in the wake of strong third-quarter earnings.

The tech-heavy Nasdaq closed Thursday at 2577, up by 37 points, beating its prior high for the year, set in April, and hitting a level not seen since January 2008. Computer stocks were on average up by more than 13 percent for the year.

The broader-based Dow Jones industrial average rose 219 points to close at 11,434, also a high for the year, and recovered the level it had reached right before the collapse of Lehman Brothers in September 2008. The failure of Lehman was followed in October 2008 by a stock market crash that sent exchanges down to levels of a decade earlier.

The immediate reason for the Thursday gain was the Fed announcement Wednesday of a planned US$600 billion spending spree on bonds, intended to inject more capital into the economy and ultimately increase employment. But the tech sector has done its part lately to encourage confidence in the economy.

For most of the third quarter, tech stocks slumped as fears of a double-dip recession weighed on investor confidence. But the IT sector started to lead markets after the U.S. Labor Day holiday at the beginning of September. The Nasdaq, home to many of the biggest names in IT, made the biggest jump of all, gaining almost 12 percent during the month. The broader-based Dow rose 777 points, or 7.7 percent, its biggest gain for the month of September in 70 years.

Since Labor Day, IT vendors have reported strong earnings. Apple and Intel (INTC), for example, reported record revenue and profit, while Microsoft (MSFT) announced it had generated more sales than it ever had for its first fiscal quarter. Other bellwethers like IBM (IBM), Intel, Google (GOOG) and Oracle (ORCL) also reported strong results that for the most part beat expectations. Enterprise spending, especially on software, has been especially strong lately.

There are clouds on the horizon, however. The components sector, closely tied to the fate of hardware including PCs and mobile devices, experienced strong sales this quarter, but recent earnings reports suggest that growth is slowing. This week, a string of reports from chipmakers reinforced analyst forecasts indicating that the post-recession sales cycle is over, and that year-on-year growth will return to single-digit levels.

Semiconductor International Manufacturing (SMIC), China's biggest contract chip manufacturer, reported its first operating profit in four years Wednesday, but also said revenue this quarter would be flat compared to the third quarter. SMIC reported a third-quarter profit of $30.7 million, compared to a $68.1 million loss a year earlier. Revenue was up by 26.8 percent to $410.1 million year on year, but up only 7.6 percent from the prior quarter.

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