Computer and Internet stocks led gains in the Standard & Poor’s 500 Index as Microsoft Corp. (MSFT) surged the most since September and Amazon.com Inc. (AMZN) climbed to the highest level in six weeks.
Spending on computers by companies and governments in the U.S. will grow 5.6 percent in 2011, about double the estimated increase for gross domestic product, according to International Data Corp. Since the S&P 500 bottomed on March 16, technology shares have posted the third-worst returns in the S&P 500 among the 10 industries.
“There probably was a bit more pessimism that was really merited, and some of that pessimism is coming out,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors, which manages $1 billion in Walnut Creek, California. Investors “are putting back on some risk.”
Technology is the biggest industry in the benchmark measure of U.S. equities, making up 18 percent of its value, according to data compiled by Bloomberg.
Microsoft, the world’s biggest software maker, gained a day before Chief Executive Officer Steve Ballmer is scheduled to discuss Microsoft Office 365, which is a subscription for cloud, or Internet-based, versions of many of Microsoft’s Office programs.
“This idea of companies broadly adopting cloud-based technology is very good for the group in general, and specifically software,” said Brad Reback, an Oppenheimer & Co. analyst in Atlanta. “There’s a real opportunity to continue to drive strong secular growth for many of the software names.”
Amazon rose after Morgan Stanley added the world’s largest online retailer to its “Best Ideas” list. Revenue and margins are likely to beat investors’ estimates in the final three months of 2011, the busiest period of the year for the company, Morgan Stanley analyst Scott Devitt wrote in a note today.
Amazon is growing at more than twice the rate of the broader e-commerce industry and will continue gaining market share over the next five to 20 years, Devitt said. The company is currently undervalued given its sales momentum and the potential for margin expansion, he said. Devitt predicted that Amazon’s stock will rise to $245 a share.
The S&P 500 rose 0.9 percent to 1,280.10 today after losing 2.1 percent in the past three days. The benchmark gauge for U.S. equities has fallen 6.1 percent since its high on April 29.
“When you have days like this, you’d expect the market to be looking for the right places to buy, and technology happens to be a place people have been looking to buy,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management Inc., which oversees about $51.5 billion. “It’s time to be optimistic.”
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