The Fed Throws a Surprise, and It's a Party for Tech

The Federal Reserve's surprise decision to make an intermeeting cut to the federal funds rate threw plutonium into a market that was already reacting well. Moderate early morning gains went thermonuclear shortly after 11 a.m., with technology companies soaring to double-digit percentage-point gains.

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The Fed Throws a Surprise, and It's a Party for Tech

At 10:50 a.m., the Philadelphia Stock Exchange Semiconductor Index, or SOX, was up 10% at 630.51, thanks to Intel's (INTC) earnings release last night. A sunny glow haloed chipmakers and boxmakers after Intel said PC demand was entering a "normal" seasonal trough -- hinting at a bottom in the PC chip market. Although analysts were divided on the bottom question, investors weren't and rushed to buy stock.

That 10% gain at 10:50 a.m. was nice, but just 10 minutes later, that total rose to 17% and the SOX sat at 671.24 -- a level it hadn't seen since mid-February.

That rise highlights a startling turn in sentiment during the past two weeks. The once intense negative pressure on a myriad of technology sectors has been alleviated as big companies come out with bleak news. The worst is coming out, investors say. The worst is over, they hope. A bottom is forming, they think. And so investors have changed their tune, rallying the SOX 26% since April 9 -- not including today's massive run-up.

The American Stock Exchange Networking Index, which is up 11.3% to 455.59, is shaking off bad news. Industry titan Cisco(CSCO) earlier this week took a massive $2.5 billion inventory writedown, taking a big charge in order to get those sky-high levels of gear off the books. The news was interpreted by some as a sign that the inventory problem was nearing a bottom.

The Amex networkers index has rallied 30% since April 4, as investors bet on a second-half recovery. And today's Fed move should only help the sector. Capital market spending is expected to increase along with overall liquidity, something that could also boost demand as prices are cut to burn off inventory. It isn't clear how much of today's rally was a result of short-covering.

All across the board, even the most decimated of tech sectors received a bolt of energy when the Fed made its decision to cut rates. The TheStreet.com Internet Sector Index was up 6.5% at 10:50 a.m. It is now up 10.8%. The Morgan Stanley High-Technology 35 Index, a collection of the biggest names in technology, was up 6.6% before the cut. After -- it rose 11.6%.

For battered tech investors, this was a much needed rally. No, it doesn't make up for the massive selloff in the past 12 months or even the big February fall, but it does add more fuel to the bullish argument that the worst is in the rearview.

Tech was not alone in the winner's circle. The American Stock Exchange Securities Broker/Dealer Index rose 9.9% as investors pour into a financial-related sector that is expected to benefit most from a rate cut. Bankers in the Philadelphia Stock Exchange/KBW Bank Index were also up a lot, gaining 5.4%. For a closer look at the financial sector's gains, check out Dan Bernstein's Sector Watch.

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