Among all the doom and gloom over earnings of banks to automakers, to soft drinks producers, technology may just save the day this quarter:
October 10 has served as the end of two bear markets (one in 1990, and one in 2002), and Monday snap gains in the Dow after big selloffs have served as turnarounds in market performance twice (once in 1933, and again in 1987). There’s a reason for this: those gains happened to coincide with earnings announcements.
When companies beat earnings expectations, that’s usually enough to inspire the last, most fundamental stage of the market growth curve to reappear: long-term investors.
In all the mayhem last week, it was easy to miss IBM’s “surprise” announcement that it increased earnings by 22% over the previous year. That’s no mean feat at any time; right now it’s nothing short of spectacular. Typically, analysts began scratching their heads.
Technology companies are not recession proof per se, but their business models are built with defenses against what we consider to be traditional recession-time activity. That’s because of two reasons. One is that tech titans learned from the vulnerabilities of their industrial predecessors when designing their organizations.
Most importantly however, it’s because the very components of traditional businesses they disrupt are the ones vulnerable to recession. Think of it like this: in a 1980′s recession, music sales were often some of the first to spiral (people can go without the extra Madonna hit when they’ve been laid off and they’re broke). That’s because of the way quick-revenue products were sold, as a $3 single (usually with one additional track produced on the cheap), earning music companies wads of cash on excessive margins. But now think about the MP3 model: the downloadable, bare-boned, stripped away single on its own for just 99 cents. That’s not something people necessarily feel the need to cut back on.
Moreover, outsourcing firms and many tech products are specifically built as cost-savers: it’s odd to think of companies cutting back on their cheapest resources when they’re strapped for cash.
Software was a major reason for the rapid advancement of the economy out of recession in the 1990′s. Of course that’s not to say that all tech companies are going to outperform, but a substantial number may do.
Mauled along with everyone else in the recent selloff, companies such as Apple, Cisco, and Intel may just end up bucking the trend this earnings season, and bringing the market up with it a little bit. And that’s exactly what they were designed to do.
IT Cuts Won’t Rival Dot-Com Bust – Gartner
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NH BLG_DEALBREAKER <GO>
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No tech is fucked. And still really expensive too.
Who cares, we want the citadel article back.
Who cares, we want the citadel article back.
Who cares, we want the citadel article back.
I’m amazed that “tech” is still driving anything. Corporate IT is no different that any other scam run on the corporate shareholders. The only difference, it’s run by the autistic people in the company, as opposed to the usual extroverted scam-artists in management.
I guess this scam will be discovered eventually.
Citadel Article PLEASE -
Markets determine fundamentals, not the other way around.
http://marketwarnings.blogspot.com/2008/10/dow-sp500-october-2008-bottom-buying.html
“Correct course of action here is to do the opposite of Joe Public and Sovereign funds:
Buy stocks, and sell dollar, and sell treasuries.
To understand why, read posts from Friday to today (Sunday), on these blogs:
http://marketwarnings.blogspot.com/2008/10/european-union-to-guarantee-interbank.html
http://marketwarnings.blogspot.com/2008/10/financial-crisis-ifm-warns-system-on.html
Sovereign funds and Joe Public share this in common: they are SCARED of risky assets at the BOTTOM, and CONFIDENT in risky assets at the TOP. The opposite of what they should do.”
5 is just jealous that he is working 80 hours a week for a first year salary that is less then what a QA tester will make right out of college. To bad you missed the boat buddy.
#7,
please stop.
we want the citadel article back assholes!
BRING IT BACK BITCHES!
I just read (Bloomberg, maybe?) that $170B of tech spending just evaporated. Then there’s everyone’s favorite poster child, the dollar.
Tech may not be fucked, but take my word for it, they are _not_ recession proof, and they will not fare well in the coming months.
There are aspects of the tech sector that will favor better than others, but an argument from the piece to the whole is a logical fallacy.
IBM is a unique company, positioned well in the global consulting field, and expanding it’s operations interntionally. Not exactly the standard IT company.
@ Phobos
Agreed.
Its really quite (over)simple:
Every bank is cutting back on IT/tech spending, we’re taking bare-bones, each project (very granular) needs to be evaluated and proven to be absolutely necessary to business continuity (etc).
What industry has $ floating around to drive a big IT spending cycle? Please, enlighten me.
Also, slightly unrelated, but Forrester/Gartner (FORR/IT, respectively) stock this year has been ridiculous, especially given what I’ve explained above.
Tech is responsible for the majority of productivity gains over the last 2 decades. Productivity lowers costs. It’s a compelling selling point.
Corporate IT shops have sobered since the dot-com bust, so you’ll see more value driven tech spending rather than a push to roll out the next big thing. It will be steady but not substantial.
wow, pisani saying tech leading the market down.
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