A U-turn for tech
Does a rebound for technology mutual funds signal more profitable times for investors?
Some would regard the relative outperformance by tech and junk bond funds as an indicator of better times to come. After all, if investors are willing to bet on risky fare during such uncertain times, they may be ready to make even bigger bets after the war is over.
Mixed signals. But Richard Moroney, editor of the Dow Theory Forecasts newsletter, notes that the situation isn't so clear. He points out that the Morgan Stanley Cyclical Index of economically sensitive stocks, including Caterpillar and 3M, was down nearly 9 percent in the first quarter. Meanwhile, funds that invest in other cyclical sectors like financial services and telecommunications stumbled in the quarter, though their returns have picked up significantly over the past month.
Other market watchers view tech's surprising resurgence as one more sign that speculation hasn't been wrung out of this market, a bearish signal. "There is absolutely no fundamental reason why technology should be up there like it is," says David Dreman, manager of the Scudder Dreman High Return fund. "This is a real wishful-thinking rally."
Many mutual fund investors are taking a wait-and-see attitude. They continue to pour money into bonds at the expense of aggressive equity funds. Nearly $28 billion of new money was invested in bond funds in the first two months of the year, while more than $5 billion was yanked out of equity portfolios. This comes on the heels of 2002, when investors pulled more than $27 billion out of stock funds.
This illustrates a fundamental problem that continues to weigh down the broader stock market. "Wall Street is suffering from a buyers' strike," says Jim Stack, editor of the InvesTech Market Analyst newsletter. The question is: Will the strike end once the war is over?
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