Can Tech POWER the Markets Higher?
On Wednesday, stocks closed higher for a second consecutive session. The Dow Jones Industrial Average jumped 103 points, while the Nasdaq and S&P 500 gained 1.12 percent and 0.67 percent, respectively. In fact, all three major indices have now turned positive for July. The strong performance was led by technology companies, but how much longer can they fuel the rally?
Expectations for earnings in the tech sector were lowered earlier this month, but Intel (NASDAQ:INTC) recently proved that some companies are weathering the storm better-than-expected. Advanced Micro Devices (NYSE:AMD) and Applied Materials (NASDAQ:AMAT) set a negative tone by slashing their outlooks. AMD announced it expected second-quarter revenue to drop 11 percent, compared to the first-quarter. Meanwhile, Applied Materials lowered its sales and earnings guidance for the full year. However, Intel provided the tech sector with a much needed boost after announcing its latest financial results.
The California-based chip maker announced that it earned $2.8 billion (54 cents per share) in the second-quarter, compared to $2.95 billion (54 cents per share) a year earlier. Although earnings dipped, Intel beat the mean analyst estimate of 52 cents per share. “The second-quarter was highlighted by solid execution with continued strength in the data center and multiple product introductions in Ultrabooks and smartphones,” said Paul Otellini, chief executive officer. He continued, “As we enter the third-quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment. With a rich mix of Ultrabook and Intel-based tablet and phone introductions in the second half, combined with the long-term investments we’re making in our product and manufacturing areas, we are well positioned for this year and beyond.”
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Intel powered the Dow higher as shares jumped 3.27 percent on Wednesday, making it the best performer in the blue-chip index. The results also had a strong effect on other major tech names in the index. The next four best performers in the Dow were all tech-related. Cisco Systems (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) gained 2.90 percent and 2.66 percent, respectively. Meanwhile, International Business Machines (NYSE:IBM) and Hewlett-Packard (NYSE:HPQ) increased 2.50 percent and 2.28 percent, respectively.
After the closing bell, IBM also provided optimism for investors, as the company reported an increase in earnings for the second-quarter. Net income increased 5.9 percent to $3.88 billion ($3.34 per share), compared to $3.66 billion ($3 per share) a year earlier. The company has now seen net income rise in three straight quarters.
In terms of relative performance, the tech sector still has plenty of upside potential. Bespoke Investment Group, a money management and research firm, recently noted, “The S&P 500 and nine of ten sectors are currently above their 50-day moving averages, and tech is the only sector below its 50-day.” In fact, only 24 percent of stocks in the tech sector are above their 50-day moving average. In contrast, all other sectors have at least a figure of 49 percent or higher.
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