Joe Battipaglia
- Rande
- Rande
- Kirk
- Rande
- Kirk
- PfatPrawfit
- Kirk
- Rande
- Rande
- Kirk
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» Rande - How long can he hand in there? Still not changing his targets:
How long can he hand in there? Still not changing his targets:
Monday, October 2, 2000
Weekly Perspective
Will expected shortfalls by PC related companies such as Apple computer or Intel mean an end to the NASDAQ’s long running advance? I think not. Instead, I believe the proliferation of personal computers in the mass market was just the first step in a much longer process of developing ubiquitous networks, commerce and network based services. Increasingly, companies such as Apple Computer and others are offering "network appliances" as simplified solutions for the average PC user at increasingly attractive prices per unit of performance. The net result of such efforts will be to further increase the installed base of network enabled users. Soon, the combination of broadband, television, internet and traditional media will bring a new array of services to the home marketplace (see Gruntal & Co., LLC’s recent report on T-Commerce). At the same time, corporations, governments and network service providers will to drive additional IT spending toward equipment and applications that support and sustain management’s attempts to garner market share, bolster productivity and improve bottom line results. The 20% year over year increase in first half profits and the 5.1% increase in Q2 productivity demonstrate this.
Today, nearly 15% of the $9.3 trillion U.S. economy is devoted to spending on equipment and software as the result of these dramatic increases in IT spending. This is up from just 6% ten years ago. Technology spending, likewise, accounts for almost one third of the overall growth in the economy as of the second quarter. According to BEA data, equipment and software continues to increase at a rate of approximately 20% per year. It is interesting to note that some of the fastest growth is happening in areas that carry significantly higher margins and average selling prices than traditional PCs. The typical price tag for such equipment as servers, network components, storage devices, optical, wireless and handheld devices, for example, is considerably higher than that of an ordinary PC.
As with the evolution of television and radio before that, the maturation of one form of technology often brings about even greater innovation and market opportunity. Because market forces guide capital to where returns are the greatest in a well functioning economy, it is not surprising to see the rapid ascension of a new crop of technology leaders among the tried and true of the PC age. The new network giants include network and optical equipment suppliers, software and service providers. Together, a vast array of product offerings including smart switches, servers, large capacity storage devices, internet telephony equipment, optical components, wireless and handheld devices comprise some of the fastest growth areas. The development of these new markets should come at a faster pace than the development of the PC marketplace largely because the PC industry has paved the way for these new services by creating mass market acceptance of technology through the introduction of the PC into homes, schools and offices.
For the third quarter and the year, I expect technology, healthcare and financial service companies to lead the way by providing superior growth in earnings. Combined, these groups represent almost half of all earnings in the S&P 500 and should provide the lion’s share of the growth in the total index (along with energy). A combination of good economic performance resulting in a soft landing and absence of intervention by the Federal Reserve supports my belief that above average earnings growth will be sustainable well into 2001. While energy concerns and a strong dollar have had a negative effect on market sentiment in recent weeks, I expect the ongoing expansion of overseas economies, continued domestic strength and improved margins to have an offsetting salutary effect on the aggregate earnings of most U.S. companies. These combined influences should help S&P 500 earnings to exceed most expectations for the full year.
Plus....
-- posted by Rande
» Kirk - Jeo's Predictions as of 10/2/00
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Slight revision downward (0.7%) in S&P500 for 2001
-- posted by Kirk
» Kirk - Oops!
Oops!Thanks Rande...looks like I put 1999 into the 2000 spot! Good catch!
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Looks like even Joe is predicting lower growth in 2001 despite what some of the bears are claiming.
-- posted by Kirk
» PfatPrawfit - Targets
I don't see Big Joe putting his targets on his weekly report anymore. Come Xmas, Joe isn't going to look so good. I am amazed by this selling and don't understand it.-- posted by PfatPrawfit
» Rande - The targets are the least thing of value, as far as I'm concern
The targets are the least thing of value, as far as I'm concerned. That doesn't just go for Joe, but all the would-be prognosticators. Nobody (as in NOBODY) really knows what the future holds. Battapaglia's worth, to me, is that he has a Big Picture focus which has been generally correct all along. He may be a little bullish for my taste, but if you're going to err one way or the other in any one period (and EVERYBODY does sooner or later), then history is on the side of those who remain invested and stay the course for the long term.-- posted by Rande
» Rande - Monday morning cup-a-Joe -- FINALLY.
Monday morning cup-a-Joe -- FINALLY....he lowers his Nasdaq target (reality must have set in). Nice to see him be up front about it anyway.
Although I expect better performance through the fourth quarter and into next year, the year to date returns of the Dow Jones Industrial Average, S&P 500 and NASDAQ composite have been below my revised forecasts. While the NASDAQ composite remains 18% above year-ago levels, it is unlikely that the NASDAQ composite will reach my year-end target of 5,500. Therefore, I am reinstating my originally forecast target of 4,300 for the NASDAQ composite index by year-end. I am leaving my S&P 500 and Dow targets at 1,625 and 12,500, respectively. I believe that excellent third and fourth quarter results will be the primary catalyst in the near term and as companies begin to report earnings in the coming weeks. At that time analysts and investors will become increasingly comfortable with forecasts for top line growth, profitability and improving backlogs.
The shortfall in the NASDAQ from it’s peak on March 12th can be attributed to two primary causes. First is the shift in leadership from the market-cap heavy PC related companies to rapidly growing network centric companies. Since the NASDAQ’s peak on March 12th, the aggregate market capitalization of PC-centric companies such as Microsoft, Dell, and Intel have declined by $370 billion (a 36% decline) while network related companies such as Cisco, Sun Microsystems, EMC, Oracle, Nortel Networks, and JDS Uniphase have experienced a $113 billion (14%) increase in market capitalization. Less important but still noteworthy has been the decline of many of the pure-play internet companies that have seen significant declines in equity value. Using the Street.com’s Internet Index as a representative universe of this group, the total market value of these pure play internet companies has declined by over $210 billion and the median price has declined by over 50%.
The disruption in the marketplace that has resulted from this process has not derailed the bull market, however. As discussed in recent weeks, the issues regarding softness in the euro, high energy prices and intermittent component shortages for some technology companies should prove to be transient in nature and have no long lasting, deleterious impacts on the earnings of U.S. companies. As the economy eases to a soft landing with growth in GDP between 3 ½ and 4% next year, I believe that the Federal Reserve will have just cause to lower short term rates. Modest inflation under 2 ½%, easing growth in consumption, historically high real short term rates and a strong dollar relative to the currencies of our major trading partners all support such an action at this time. I do not believe that an unemployment rate of 3.9% poses a serious threat to this outlook since unit labor costs continue to fall thanks to improving productivity.
So while business cycles and political risks still remain, I see no significant threat to the ongoing expansion of the U.S. or global economies. Currency fluctuations and volatility in oil prices have been commonplace throughout the expansion but have had little material or long lasting negative impacts on the ability of U.S. corporations to increase unit sales, enhance market share or improve profitability. Meanwhile, the balance sheets of households, government and corporations continue to show improvement as assets and income rise relative to obligations. At the same time, years of increased investment spending by corporations will have long lasting effects in raising productive capacity, efficiency and long run profitability for most companies.
-- posted by Rande
» Kirk - Joe's Numbers for 10/9/00
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-- posted by Kirk
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