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Fifteen years ago, in 2000, the sages warned that the dot.com bubble was going to burst. They were right. It did. I don’t remember them saying that it would come bubbling back in 2015. But it did – yesterday. Some may want to call it by a different name, but when the NASDAQ (NASDAQI:COMPX) rose to a record high of 5,092.09, it was dot.com companies that put the air in the bubble.
What’s Going On?
One equity strategist observed that, “The situation is quite different from 15 years ago during the IT bubble. Growth evolution is really positive for IT stocks, because you have some good ideas and good evolution related to big data and cloud computing.” Another strategist declared that, “Tech is the whole story today on the upside. That’s where the excitement is. The Nasdaq has been outperforming this earnings season as it’s clearly less impacted by energy prices and the strong dollar.”
I’m surprised that he did not mention the growth of technology stocks due specifically to the march toward the Internet of Things. Somehow, that elusive intangible is not being readily grasped by market analysts so much as it is to economists, like Jeremiah Owyang, who are more aware of where the technology is heading.
One place the technology and, therefore, the NASDAQ, are headed is up. Especially as companies like Amazon (.com) (NASDAQ:AMZN) contribute to the bubble with increases in excess of 14% as it did yesterday.
Amazon closed at a record high of 445.10 on investor reaction to a 15% increase in sales during Q2 year-on-year from $19.74 billion to $22.72 billion. Google (NASDAQ:GOOG) shares have also contributed heavily to the NASDAQ record high, gaining from 535.53 on 02 April to close yesterday at 565.06, and increase of 5.5% that included an increase of 3.3% in Friday’s trading.
Then there is Microsoft (NASDAQ:MSFT), the tech company that will not go away, whose third quarter sales were up 6.5% from the same period in the prior year, beating Wall Street expectations. MSFT’s shares added 10.43% to $47.86.
Be aware that these were not the only tech stocks blowing up the bubble, but they were at the forefront, which, by the way, also spurred the S&P 500 to a new record close at 2,117.69.
What does it mean when stock outperform expectations?
As former U.S. President Bill Clinton would say, “It all depends on what your definition of “is” is.” Stephen Freedman, head of cross-asset strategy at UBS Wealth Management Americas put some much needed perspective on the answer to Mr. Clinton’s statement. He reminded us that, “There was clearly a lot of downward managing of expectations going into the season.” That’s the kind of thing many often forget. Plus, it is a lot easier to exceed lower expectations than it is to exceed higher ones. Nonetheless, I would be remiss not to include his additional comment that “The beats are broader than usual.”
I look for advances in technology to continue at an accelerated pace, possibly beyond anyone’s expectations.
Image courtesy of Kookkai_nak at FreeDigitalPhotos.net
