Tech Stocks Approach Pre-Bubble Highs on Earnings Optimism
A good portion of the market’s attention focused on technology stocks this week, with the sector driving higher to reach its best levels since 2000, when the Dot Com bubble was hitting its peak. Some of the individual headlines centered on tech companies in emerging economies, with the market value of Samsung Electronics surpassing the $200 billion level (a new record high for the stock) as analysts remain positive with their quarterly earnings expectations.
Looking at the broader measures for the sector, the MSCI Emerging Markets IT Index made gains of 1% on the week, to trade above 270 at the Friday close (the highest close since the middle of 2000, and a year-to-date rise of 26%). At this stage, technology stocks in emerging markets are seeing better performances than their developed economy counterparts, but the general trajectory is upward and this was helped by last week’s US economic data which showed strength in the labor market and propelled positive sentiment.
US Non Farm Payrolls Keep Market Supported
During the week, price volatility was seen stalling as investors opted to hold off on committing to positions until the major economic releases for the week, the US Non Farm Payrolls and accompanying Unemployment Rate, were made public. These releases ultimately came in above expectations, with the November jobs market showing an increase of 146,000 new hires.
So while this showed slowing momentum from the October report (when 171,000 new jobs were added), the total trader reaction was positive for stock prices as the accompanying Unemployment Rate dropped from 7.9% to 7.7%, which is the lowest it has been in nearly 4 years. The headline Payrolls figure was also 82% higher than most analyst estimates, which called for a monthly jobs increase of only 80,000 jobs.
Looking ahead to next week, there is relatively little on the data calendar to influence stock market, with consumer price reports (CPI) to be released by the US, Germany, and the Eurozone as a whole. And with the latest loan tranche for Greece already seeing approval, most investor attention is likely to center on the ongoing Fiscal Cliff negotiations in the US and any changes in Retail Sales expectations for the holiday spending season. Look for market volatility to continue to slow, unless we see any major headlines regarding a potential interest rate cut in the Euro zone, or a general unwillingness amongst US politicians to reach a budget compromise before the end of this year.
The NASDAQ is consolidating gains after making its strong bounce from the low 2500s. So far, prices have stalled at 2690, which is where a confluence of resistance levels (the 100 day EMA, the 50% retracement of the fall from 2860, and now a historical double top formation) come into play. Because of this, a break of 2690 is critical for sustained gains this month but with 2620 marking strong price support, it will not take much to see this area overcome. Longer term, a break of 2690 targets a full retracement back to the September highs.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.