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May 13, 2005
A Boost for Tech
It's Friday the 13th. I admit, I'm a little superstitious. And I try
not to read too much into the market action of the moment. I do
wonder, though, about the notable strength in tech stocks for the
last two days. Investors are clearly rotating out of energy and
cyclical stocks and into tech. Today, it was good earnings news from
PC maker Dell and chip maker Nvidia that helped boost the tech
sector. This follows the positive earnings news from networking gear
maker Cisco Systems on May 11.
How long will the strength in tech last? Fund manager Jerry Jordan
href="http://www.businessweek.com/bwdaily/dnflash/may2005/nf2005053_4323_db006.htm"target="_new">told us that he eliminated his long
positions in oil stocks, as well as his basic industry and materials
stocks, in favor of large-cap growth companies. When we asked him if
it's time to buy large-cap tech stocks, he said: "We believe the time
is now." He must be smiling right now.
My blog partner Amey Stone just sent me these interesting stats from
Michael Panzner at Rabo Securities. He says:
"Based on an analysis of data from 1972 through 2004, there appears
to be a distinct ebb and flow in the relationship between the Nasdaq
Composite Index and the S&P 500 Index.
In general, the Nasdaq Composite tends to outperform the S&P 500 from:
January through February (that is generally the strongest
Mid-April through mid-July (the current period)
Mid-August through mid-September
November through early-December
Mid-December through year-end
In contrast, the Nasdaq Composite tends to underperform the S&P 500
March through mid-April
Mid-July through mid-August
Mid-September through November
Early-December through mid-December"
There's some food for thought on this freaky Friday. Let us know what you think.
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According to your model, both indices outperform each other in November. Am I reading this wrong? Or is that an error?
Posted by: Brian at May 14, 2005 11:41 AM
I just heard back from Michael Panzner regarding the month of November. Here's what he wrote:
"Under the 'Nasdaq Composite tends to underperform section,' the bullet that reads 'Mid-September through November' should be
'Mid-September through October.'"
I also followed up by asking him why there were so many mid-month changeovers. He responded:
"I am assuming that:
* The mid-April changeover probably has something to do with the fact that income taxes are due on April 15th, which may affect the amount of cash available for investment from individual taxpayers.
* Mid-July through mid-August is a time when many people -- including Wall Streeters and institutional investors -- tend to go on vacation, which may affect day-to-day trading liquidity, especially in the more volatile shares
(i.e., those in the Nasdaq).
* Mid-August through Mid-September is a time when children (and teenagers) head back to school (or college), and analysts usually make forecasts and certain industries (e.g., PCs, apparel) give updates on related sales trends.
* Mid-December is when many analysts provide insights on what they expect, and many investors start buying in anticipation of what they see happening, in the year ahead. As in the mid-July through mid-August period, trading liquidity
tends to diminish as well.
Posted by: Amey Stone at May 17, 2005 10:41 AM