The outperformance of tech over the last 3-4 months is noteworthy (Top Gun first noted it on July 5 “Tech Leads Market”).
A number of prominent tech stocks such as Apple (AAPL), Google (GOOG), Research in Motion (RIMM) and Cisco (CSCO) are trading at their highs for the year – above their peaks back in mid July (WSJ Table).
The Wall Street Journal ran a story today on this and why it might be happening: “Tech Stocks Get Giddy” (subscription required).
If you look at this YTD Chart comparing the S&P 500 with the Nasdaq 100 Trust (QQQQ) you can see that tech’s outperformance got started in June – when the fallout from subprime mortgage backed securities started taking center stage. And tech’s outperformance has continued through the credit crunch correction and the bounce over the last month.
I suppose the line of thinking here is that tech companies aren’t going to be affected by problems with mortgage backed securities or LBOs. They don’t have much debt, they have plenty of cash and their business doesn’t involve those kinds of things.
Plus, we’re seeing continuing growth in the internet, especially video over the internet, and now internet over mobile devices like cell phones.
On the other hand, the performance of these stocks has been incredible, they aren’t cheap and I have to wonder if their earnings will hold up in a serious economic slowdown.