The tech sector will take center stage in the coming week, as the
recent rally faces its first big test.
For the first time since the Internet bubble popped in 2000, the technology sector has led a stock market rally. The Nasdaq is up 14% from its Aug. 16 low, which came right in the thick of this summer's credit crunch. The broader market has recovered since then as well, in a bounceback stoked in part by rate-cutting moves at the
. But the gains beyond tech have been less pronounced, with the
Dow Jones Industrial Average
each up 10%.
So what's driving tech's big run-up? Companies and consumers alike are snapping up new gear and gadgets at a rapid clip. Wall Street will be looking for evidence of that growing demand when tech's third-quarter earnings season starts this week, with reports Tuesday from
, Wednesday from
and Thursday from
Strong reports will only feed investors' sense that the tech rally may just be getting started in earnest.
"I think there's more to go," says James Paulsen, chief investment strategist at Wells Capital Management. "There's a lot of unspent buying power in the business sector."
Indeed, many observers expect the sector to continue to outperform, because businesses still flush with cash will spend more money on technology upgrades than mergers and acquisitions. Many also note that the weak dollar is stoking global demand for U.S. exports -- another factor that will help tech companies grow and expand into markets overseas.
That kind of thinking is part of what has driven the tech rally in recent months. Since Aug. 16's recent market bottom, Google is up 31%,
is up 43% and
is up a head-turning 92%.
But with rich rewards such as these come increasing risks. Investors were reminded of that last Thursday, when an analyst note predicting a merely in-line quarterly performance from Baidu
sent technology shares tumbling. Baidu dropped 10% and other highfliers slipped as well.
But the group bounced back nicely Friday, and many observers expect any earnings-related hiccups to be relatively small. And why not, given the premium investors have shown they're willing to pay for these sizzling stories.
"People will pay up for growth," says Jeffrey Saut, chief investment strategist for Raymond James.
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click
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