Interesting day is unfolding before us. The Dow Jones is off 1.4% while the NASDAQ index is off nearly 3%. So what gives? Why is this happening?
The big gains for the calendar year happened more with NASDAQ stocks than Dow stocks. Look at the performance of Intuitive Surgical (NASDAQ: ISRG), Google Inc. (NASDAQ: GOOG), Apple (NASDAQ: AAPL) and Research in Motion (NASDAQ: RIMM). All have experienced superb performance because of excellent growth in revenues and earnings. This is where money had been hiding as financials and other sectors have been hurt this year.
The portfolio manager community is now playing defense. If there are gains and we are in November, it is bonus protection time. Remember the first rule of the government bureaucracy: protect the bureaucracy. Same with fund management, as November is the time to lock-in performance for maximum bonus payments.
OK, this may all be a bit facetious.
Cisco (NASDAQ: CSCO)'s John Chambers said in very careful words that there is growth still on the horizon, but financial institutions were backing off on technology spending. Also, the fact that Cisco did not guide its revenues and earnings outlook higher did not help either. So investors are wondering if the near-term revenue and earnings for the great performing names of 2007 might see a touch of a slow down. Time will tell.
Stock prices follow earnings growth. The ultimate barometer for any stock is the growth and sustainability of its earnings. With the Fed chairman issuing a slight cautionary tale and Cisco, a global tech giant, saying the same thing, the high performers are paying the price.
Georges Yared is the CIO of Yared Investment Research and the author of Baby Boomer Investing...Where do we go from here?
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Reader Comments (Page 1 of 1)
11-08-2007 @ 3:28PM
AUGUST said...
Hi Georges,
I too believe there are serious and severe defensive moves being initiated by investment managers to "protect the hive." Although I don't agree with this across the board "just because Ben says the sky is falling," line of strategy, I do understand that it happens.
Of more concern to me is the DEPTH of the knee jerk over-reaction, where billions are lost on one negative word, all while most of the TECH reality and outlook is actually positive. Go Figure...
Anyway, as always... thanks for calling it quick & calling it good.
Thanks for listening.
AUGUST
11-11-2007 @ 4:53PM
BILL said...
Seems to me the Googles and the Apples got hit because they were exploding in recent months. Not only did the investment managers sell to protect their final paperwork for the year, but the people in the market who had unusual gains, also took their profit. How unusual is this at the end of the year, when almost everyone looks to take their profit?
I say, "not at all", especially when it is the middle of November. No matter the psychology, when Apple announces the next quarter, the stock will attract new heights. The market makes us all patient, if we bought the right stock to start with.
Bill