Wednesday, 8 July 2009


(By Richard Holway 10.30am 8th July 09) We’ve reported on the relentless rise in tech indices both in the UK and US in the first half of 2009. NASDAQ up 16% to 30th June 09, FTSE SCS up 34%. (See our post Shares Indices in June) We also mused that this kind of outperformance against the general stock indices (the FTSE100 is down 4% on the year) was unusual. The only other time I remember such a divergence was in Q1 2000 – and we all know what happened after that.

In the first five trading days of July, however, the NASDAQ has slumped 5%. Yesterday the ‘blame’ was put on a Gartner report that Worldwide IT spending is on track to contract by 6% in 2009. This compares to a Gartner forecast of a decline of ‘only’ 3.8% made three months ago. (Readers must know by now my views on the accuracy of forecasts from the likes of Gartner and Forrester – so I won’t repeat them here)

As a CEO from a major quoted SITS company emailed me this morning “I think the interesting aspect of this is the growing realisation that earnings forecasts are crucially reliant on companies Q2/Q3 performance with an optimistic assumption built into the Q4 quarter. A weakening over the summer, although understandable, will clearly put all these forecasts at risk and will not provide the upward momentum for Q4 bounce which is what equity earnings expectations are expected to do. ie this has been "baked into the cake" with not a little splash of hope”.

I have to say this has long been my view as you know! I am reluctant to forecast stock markets for obvious reasons, but I have long felt that tech stocks were ‘getting ahead of themselves’ and were due a correction. The more they rose, the steeper the required correction.

It will be interesting to see how this affects UK SCS today and in the period ahead.

Footnote - Why W? Read my 17th May 09 post W.

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