In good markets or bad these days on Wall Street, technology stocks seem to get most of the starring roles.
They were the standout stocks of 1994, when most of the broad market indicators were struggling just to break even. Even with a wave of selling this past week, they were prominent gainers in the first quarter of 1995.
As of late March, five of the eight best performers this year to date among 95 industry groups tracked by Dow Jones & Co. came from the technology sector.
Semiconductor stocks, in the No. 1 spot, boasted a gain of better than 36 percent. Advanced medical devices, ranked No. 3, and industrial technology, No. 4, were each up more than 18 percent.
Office equipment, in sixth place, was up 17 percent, and software and processing, No. 8, was up more than 16 percent.
Similarly, science and technology funds were the second-best performing mutual fund sector in the first quarter - and the best performer over the past 12 months.
“The bull market in technology stocks remains intact,” observed analysts at Natwest Securities Corp. “We continue to believe they will be the primary beneficiaries of U.S. economic expansion, even at a slower pace of growth.
“Investments in technology remain a key to productivity improvements. The sector should also benefit from global economic recovery and a favorable U.S. dollar exchange rate.”
The tech stocks’ steady advance shows that some economic and investment trends aren’t affected much by fluctuations in interest rates and short-term wiggles on the charts of business activity.
But in other ways, the stock market climate has undergone some dramatic changes since last year as interest rates have changed direction.
Financial issues such as banks, brokers and insurance companies, depressed in ‘94 by high and rising interest rates, have rallied briskly in early ‘95 as rates have come down and bond prices have moved up.
Through late March, Dow Jones’s eastern banks, securities brokers, life insurance and full-line insurance groups all showed gains of 16 percent to 17 percent, putting them in the top 10.
Reflecting that trend, financial services funds were the top-performing mutual fund group in the first quarter.
By contrast, some cyclical industrial and manufacturing stocks that fared so well in 1994 have bogged down so far this year amid evidence that the economy is slowing.
Steel stocks, down a little more than 10 percent, stood dead last among the industry groups for the year through late March. Auto manufacturing, down 7 percent, and nonferrous metals, down more than 6 percent, were other notable losers.
Presumably, the cyclical and interest-sensitive stocks could switch roles again as the year progresses if investors start to conclude that a “soft landing” for the economy is setting the stage for renewed strong growth later on.
Says Natwest: “We do see an economic slowdown, but a recession appears unlikely at this time. We believe this expansion should continue and cyclical stocks should be big winners in 1995.”
But after a first quarter in which the Dow Jones industrial average broke 4,000 and the Standard & Poor’s 500-stock composite index cleared 500 for the first time, many analysts are cautioning that enthusiasm for stocks in general may be getting a bit excessive.
“Stocks need a breather,” declares Standard & Poor’s advisory The Outlook. “As the market advance proceeds, value becomes more difficult to find.”
“The Dow, since last Thanksgiving, has had quite a run on the upside,” adds William LeFevre at the New York investment firm of Ehrenkrantz King Nussbaum Inc.
“We think the market will continue to rise in the second quarter. That said, we would be remiss in not suggesting that the Dow could sustain a sharp, short-term decline in the order of 200 points.”