Political commentators say George W. Bush, having appealed to the right wing of the Republican Party to take the commanding lead in the GOP presidential nominating process, must now reach out to moderates and independents if he hopes to win in November.
In the same way, Wall Street will not achieve its normal election-year rally, which traditionally begins in April or May, unless doctrinaire technology investors reach out to a broader base of equities.
When the Nasdaq composite index, dominated by a handful of major tech stocks, crossed the 3000 milestone last November, the broader and more traditional Dow Jones industrial average closed at 10,609.
A little more than four months later, the Dow on Thursday stood at 10,010 and the Nasdaq index at 5046, its first close ever above 5000.
The Nasdaq index has posted 15 record highs so far this year, while the Dow remains stuck in a 10 percent correction.
At that rate of acceleration, it’s no wonder respected Wall Street pundits were talking seriously Thursday about the Nasdaq composite index overtaking the Dow Jones industrial average in the foreseeable future.
But chances are better that such competition between the so-called new economy and old economy is mutually destructive.
Right now, the Nasdaq rally looks like a fundamentalist crusade grounded in a powerful and perhaps intolerant faith in the unknowable.
In recent days, even some technology leaders, such as Microsoft, have been branded old-economy tech stocks that should be sold to buy the more radical upstarts.
In the face of such tech fervor, buyers of anything besides hard-core technology growth stocks caught up in self-fulfilling price rallies are waving the white flag or being shot by their clients.
“Everybody who said, `Get out of this market, it’s a trap,’ has been fired,” said Bill Noble, market strategist at MarketHistory.com in Austin, Texas.
If this continues, there won’t be enough so-called value investors left to bring the majority of stocks out of their steep slump.
What’s needed, and what appears to be under way, is a blending process. This year, venerable companies in virtually all industry sectors have attempted, albeit with mixed results, to adopt a tech strategy.
Sears Roebuck and General Motors, to name just two blue chips, have announced significant moves into Internet-based business ventures. McDonald’s, one of the beaten-down blue chips, added $1.25 to $32 Thursday after the company disclosed an investment in on-line food vendor Food.com.
John Park, a small-company specialist at Wanger Asset Management in Chicago, noted that one of the winners in Thursday’s rally was Michigan-based furniture maker Herman Miller–hardly a tech darling, but a company that has successfully integrated technology in its operations.
Indeed, Park, manager of the Acorn 20 Fund, said he was struck by the breadth of Thursday’s rally, which drew many laggards to the bandwagon.
Of the 11 major industry categories tracked by Standard & Poor’s, 10 posted gains Thursday.
“I don’t know if this is just a head fake or not,” he cautioned.
The flip side of the blending process involves leading-edge companies comprising the so-called new economy reaching out to form alliances with old economy stalwarts.
One of the few notable corporate stories accompanying Thursday’s market rally was fresh optimism that Internet service giant America Online plans a partnership with AT&T. AOL’s proposed acquisition of Time Warner stands as the premier example of blending.
“The new economy is for real; the new economy stocks are not necessarily for real,” said Rao Chalasani, chief strategist for First Union Securities in Chicago. “New economy companies are saying they need wheels on the ground.”
The blending process, whether it involves traditional companies morphing into tech-savvy operations or tech companies reaching out to old economy companies, may not convince the tech momentum zealots.
Noble of MarketHistory.com is pessimistic. He sees tech buyers turning instead to penny stocks at the most speculative end of the market. He fears a sudden and painful end to the tech binge sooner rather than later.
“I’m pretty sure the definition of a market top is penny stocks start on a rage,” he said.
In recent weeks, symptoms of speculative pressure within the tech sector became apparent. Investors appeared to be selling the large-cap Nasdaq stocks to acquire more aggressive growth stocks. The Russell 2000 index of small-company stocks climbed to a record high close Thursday.
Locally, this substitution was symbolized in recent weeks by weakness in Lisle-based telecommunications equipment supplier Tellabs.
Last month Lehman Brothers strategist Jeffrey Applegate recommended selling Tellabs and buying fiber-optic equipment-maker JDS Uniphase, one of the highest fliers of the last six months. At least on Thursday, that trend reversed course, as Tellabs jumped $4.31, to $54.62, in heavy trading and JDS Uniphase slipped $3.12, to $272.50.
More broadly, Thursday’s action saw Nasdaq leaders reassert themselves, while the most speculative end of the Nasdaq market, biotech stocks, continued a weeklong swoon.
Overall, winning stocks outnumbered losers by a 4-3 ratio on both the New York Stock Exchange and Nasdaq stock market. Such positive market breadth was as welcome as the latest millennium mark on the Nasdaq composite index.
Expectations of strong first-quarter corporate earnings explains much of the optimism on Wall Street.
Professional money managers seeking to embellish their portfolios ahead of first-quarter reports see a variety of reasonable bargains.
On the other hand, a collapse of speculative momentum in the Nasdaq market combined with the headwind of higher interest rates generated by the Federal Reserve would be a powerful one-two punch against an election-year rally.
