Investors have begun to shift out of tech. But they're not buying the stocks they were supposed to.
January 23, 2004: 8:48 AM EST
By Justin Lahart, CNN/Money senior writer
NEW YORK (CNN/Money) - It looks like the market rotation so many Wall Streeters have been waiting for may finally have begun. Just not in the way they expected.
Tech stocks have faired very poorly over the past couple of days, but this weakness hasn't extended to other areas of the market. Even though the Nasdaq has posted back-to-back declines, the S&P 500 went one-for-two (for a net gain) and Dow nosed higher both days.
This tech weakness comes in the midst of a flurry of very good earnings reports. Earnings growth among the techs has been among the strongest for any sector, and results thus far have topped analyst expectations, according to Dresdner Kleinwort Wasserstein's portfolio research team, by 14 percent. The common conceit on the Street (whatever it may be worth) is that investors fully expected tech's good growth and now they're selling the news.
A shift out of tech has been something that plenty of market-guru types have been calling for. 2004 will be the year when investors get out of the sports car stocks and get behind the wheel of consumer staples stocks -- the market's Volvos. These are the companies like Gillette and Coke that make stuff we use day in and day out, and so tend to grow earnings steadily year in and year out. They're boxy, but dependable.
But that's not what's been happening. Consumer staples stocks have posted only fractional gains over the past couple of days (for the year, they're down). If anything the money that's come out of tech appears to be finding its way into consumer discretionary stocks -- last year's second-strongest group, after tech. Financials, too, are doing well.
These are not the sorts of stocks you leap into if you think that the economy is going to moderate, or that households are going ease up on spending and start concentrating on bringing down debt levels. In other words, these aren't the kinds of stocks you go into if you pay much attention to what a lot of economists are saying these days.
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