Tech saves stocks from retail woe

By Pete Southern in LiveWire Economics Blog | January 26, 2009 18:14 |

With retailers continuing to struggle through the holiday season and into the New Year, investors have recently begun placing their bets that technology stocks may help hold the market from more steep declines. Circuit City’s announcement that it was closing its remaining 567 stores in the US and liquidating was good news for some of its competitors, but bad news for the retail sector already facing tough economic times.

The financial sector has also been teetering on the brink of more devastating. The sector managed to overcome rough trading days this past week despite continued concerns about the effectiveness of government bailout money. Bank of America was awarded another significant chunk of bailout cash earlier in the month. Debate in Congress over the issuance of the final $350 billion in previously established bailout funds, and much of the discussion over President Obama’s new $825 billion plan, centers on how much tolerance Americans have for support of creditors.

It was some bright developments in technology that helped stem the tide of several rounds of selling on Wall Street in the past week. Tech leader Google posted better-than expected results in its quarterly results announced January 23. The company’s shares gained $18.20 on the day to close at $324.70. This price point is still well below the $600-700 range that the company’s shares were early in 2008.

Google also took a bold step in repricing thousands of stock option exercise prices for its employees. Somewhat to the dismay of shareholders, the company decided to reprice options that were awarded to employees at $400 to $260. Over 17,000 employees are likely to benefit from the repricing since they owned options that were well below the exercise price before the repricing. The company has long maintained a stance of taking care of its employees first. Many Google employees have become wealthy from their ownership in the company.

Apple also posted strong earnings results much to the applause of the markets. The growing tech giant has leveraged its leadership in mobile technology and digital entertainment applications to gain revenue and market share. The earnings were especially beneficial to Apple following the recent distraction of the health controversy surround CEO Steve Jobs. Jobs had downplayed concerns about his health several months ago but announced plans early in January to take some time off from the company to focus on his health.

Apple’s stock currently sits just below $90, a price point well below one-year consensus forecasts of $125 for the stock. The news of Jobs’ status has left some investors a bit leery about betting on the long-term innovative capabilities of the company. However, the here and now is pretty impressive.

Other than a few inspiring technology reports, there has been little positive news to inspire investors as of late. Housing data continues to weaken. Retail data is not getting any better. Most investors and consumers are hoping that the transition into a new Administration’s economic policies can shock the economy into motion. If not shock, than maybe stimulus will do the trick.

Neil Kokemuller

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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