Updated from 6:58 a.m. EDT
The major indices staged a decent comeback Tuesday, as solid tech earnings and evidence that inflation remained tame in March calmed the nerves of investors still rattled by last week's rout.
Dow Jones Industrial Average
gained 56.16 points, or 0.6%, to 10,127.41 Tuesday, while the
advanced 6.80 points, or 0.6%, to 1152.78. But the biggest gains were posted in the tech-heavy
, which added 19.44 points, or 1%, to 1932.36.
The stronger-than-expected March consumer price index report took the futures down in pre-open activity, but the action was tilted to the upside Wednesday morning, as
each posted better-than-expected earnings after the close.
Shortly after the 9:30 a.m. EDT open, the Dow was up 0.3% to 10,153.65 and the Nasdaq was up 0.4% to 1939.35 behind early strength in Intel and Yahoo! The S&P 500, however, was down 0.1% to 1151.42 despite a largely strong bout of earnings by components such as
J.P. Morgan Chase
The relief provided Tuesday by a tame March producer price index and solid earnings from
and other tech companies was tenuous and may not prove to be a lasting cure for the market's underlying problems.
After all, inflation concerns were put on the back burner in last week's rout as the prospect of slower growth took center stage and fueled concerns about earnings for the second half of the year. Likewise, individual success stories in the tech arena, while offering decent trading opportunities, may not completely overshadow less-promising stories from the likes of
Undeniably, the positive results from Intel and Yahoo! will go a long way in easing the pain inflicted on techs last week after IBM's disappointing earnings fueled fears of a slowdown in business spending. But do these results really contradict the slowdown in business spending experienced by other tech leaders?
Surely, if IBM and others -- such as communications-gear makers
-- are seeing slowing demand, the party is not going to be for everyone in the tech universe.
"One thing we can say is that demand is not booming," says Sanford C. Bernstein & Co. strategist Vadim Zlotnikov, who notes that 60% of the "early reporters" in tech have guided downward.
Robert Pavlik, portfolio manager at Oaktree Asset Management, is also not convinced. "I don't know about you, but in our office we still have that same old printer we've had for several years," he says. (Actually, we have an aging printer here at
Printers aren't actually symbolic of high tech, but more broadly speaking, Pavlik says that "a lot of companies are holding off on their tech spending, they're making do with what they have, and they've been better at integrating existing technologies."
Either way, after the severe pullback that took the major indices back to pre-election levels last week, the market is unlikely to find lasting support from individual success stories in the tech universe.
"We're at a very early stage of bifurcation between winners and losers, where we might witness a lot of share gains as opposed to real underlying strength of the market," says Bernstein's Zlotnikov.
The stock of any company guiding earnings upward will be rewarded disproportionately, while the ones guiding downward will see their stocks take a severe beating, he continues. "Everybody is nervous, correctly, that the profitability we've seen so far is unsustainable going forward, and unsure of where the bottom lies."
Optimism Comes Too Soon?
As mentioned here on Monday, Tom McManus, a Banc of America strategist, raised his
recommended equity exposure for the first time in two years, to 60% from 55%. He made the move after last Friday's rout and after the market's increased bearishness improved the risk/reward ratio for stocks. But he also said that any sign of regained optimism would make him turn bearish again.
"What would make us more bearish," he wrote, would be "a quick rebound, which would likely rebuild bullish sentiment. Further evidence of a deteriorating profit growth rate" would likewise restrain him from seeking more exposure to equities.
The fate of sentiment will surely depend on growth going forward, and on whether the bite from oil prices and rising interest rates will continue to affect spending on both the consumer and business side.
In that context, the impact of broadly in-line March PPI, which eased inflation fears, was mostly a positive for the bond market.
The March PPI rose 0.7% in March, slightly above the 0.6% expected by Wall Street economists, and above the 0.4% gain seen in February. But core producer prices, which exclude food and energy prices, remained tame, rising 0.1% in the month against expectations for a rise of 0.2%.
Bond traders cheered the PPI as further evidence that the
will not raise rates aggressively later this year. The 10-year Treasury bond surged 21/32 in price to yield 4.19%.
Lower interest rates, it could be argued, may help fuel the real estate bubble a bit longer. Meanwhile,
posted a 56% increase in earnings Tuesday, helping lift the Philadelphia Housing Sector Index by 0.7%.
Interestingly, housing starts plunged 17.6% in March, marking the biggest drop in 14 years. However, the drop is only a correction from exceptionally high levels, according to Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Housing activity has more or less peaked but is not yet falling."
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send