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[qi:053] A bounce in technology stocks, at this point, is inevitable. With the S&P’s tech sector down 10 percent so far this year — and a bearish-looking 20 percent since last summer — it’s just a matter of time before the sellers get tired and others step in to buy, if only for short-term gains.
That leaves two questions: The first is when will the bounce come? And more importantly, what happens then? Is it the proverbial dead cat? Or is it a chance to get in on a sure-fire recovery now that the worst is past? Without a doubt, there’s as much uncertainty now as there has been in a while, and an absence of indicators tends to make us read the worst into the vague gloom. Further, there’s plenty of gloom to read into.
After a slight initial pop, the Nasdaq has edged back down into negative ground as I write this Wednesday. Even a small decline today would be significant. According to Paul Kedrosky, that would be the longest losing streak for the Nasdaq since May of 1984.
After less than six trading sessions, a lot of big names are bruised. Shares of Amazon.com (AMZN) are down 11 percent, Apple (AAPL) is down 13 percent, Intel (INTC) has lost 16 percent and Research In Motion (RIMM) is off a whopping 17 percent.
Since I looked at the tech sector through the lens of bellwether Apple, lots of news has come and gone. Very little of it was good, and there were inside that stream some particularly unsavory morsels. AT&T (T) stunned analysts when an exec said people aren’t paying their phone bills. Their phone bills — one of the last items normally trimmed from pinched household budgets. Now it could be that, rather than having the luxury of both a wireless account and a land line, people are simply foregoing one in favor of the other, but news like that doesn’t inspire confidence.
Then it was revealed that a director who has sat on Dell’s (DELL) board for 13 years sold half his holdings in the PC maker. The director, Michael Miles, is also on the boards of both Time Warner and the airline AMR, neither of which are exactly the kinds of stocks that people are stuffing their portfolios with this month. But he didn’t touch any of those shares (assuming he is a major holder).
Meanwhile, tech retail, a mixed bag in 2007, is so far notably less mixed in 2008. Even some of last year’s better performers are having a rough time. Bear Stearns downgraded Best Buy (BBY) Tuesday, and when GameStop (GME) reports that it’s raising guidance on fourth-quarter sales, it’s stock gets beaten down.
Developments like that make you wonder about the upcoming earnings season. As tempting as it is to think that the worst selling is behind us — that there could even be a bounce when numbers are reported — it doesn’t look like that’s going to happen. Broadband provider Centennial Communications (CYCL) said Tuesday it swung to a profit and matched the penny-a-share earnings of a year ago. But it fell short of the Street’s expectations and was slammed 17 percent in one day.
If this is a taste of what’s coming, we’re in for a rocky ride. A lot of stocks rallied last year when analysts were underestimating profit growth. If tech earnings prove to be worse than analysts have been forecasting, the stock losses seen so far could get worse.
Many tech giants have been benefiting from strong consumer sales, but if this year’s CES is any indication, there aren’t a lot of innovative new ideas out there right now. Who’s going to line up to buy a 150-inch plasma TV in a recession?
There is still Macworld. The buzz is that Apple has some interesting announcements planned, but it’s hard to imagine anyone that could match the frenzy sparked by the iPhone last year. The market needs some genuinely good news to get us through this long winter.