Since the re-emergence of the credit crisis in late July, one of the few sectors remaining largely resilient amid a market panic has been the technology sector. More precisely, semiconductor companies continue to report strong demand for their products with Intel Corporation the latest entity to recently boost its Q3 guidance. That’s bullish news for the world economy because technology, highly cyclical to economic trends, is in the midst of a mini-boom in the industrialized and emerging markets in 2007.
In prior economic booms and busts, technology stocks responded with a high degree of correlation to broad-based economic trends. The last boom-bust cycle in the late 1990s notwithstanding, tech booms in the 1980s and 1970s all led to major price declines for sector stalwarts as recession fears mounted, eventually resulting in periods of economic contraction. But this time, recession fears, though rising since August, have not derailed the primary uptrend for sector leaders like Intel, Hewlett-Packard and IBM. That tells me earnings remain strong and demand for their products unfettered by the bearish news still spewing on Wall Street and across European money-markets.
The above chart on Intel, from late June to September 14, shows strong support for the world’s largest semiconductor company by revenue, despite the 10% correction from peak-to-trough for global stocks from July 19 to August 16. Intel’s stock price has actually risen since June 30 – not declined, compared to a major hit inflicted across most sectors of the market since mid-July.
Technology stocks are still cyclical and any threat to global growth would have severely impacted their stock prices by now; the fact that this hasn’t occurred is a very bullish sign for global economic growth and corporate earnings over the next 12 months.
To be sure, the ongoing sub-prime crisis and money-market tumult for mortgage-backed commercial paper will slow economic growth next year. But despite all the damage done to the real estate sector, hedge funds, private equity and massive central bank cash injections since August, the Dow is just a few percentage points below its all-time high. And semiconductor stocks have actually risen over the same period.
Now that’s a resilient bull – at least so far.
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