Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The Dow Jones Industrial Average (DJINDICES: ^DJI ) has responded to a mixed set of news this morning, with investors trying to figure out whether positive economic data is bullish or bearish for the Dow. A report on job growth in the private sector pointed to faster-than-expected hiring, with an increase of 215,000 jobs in November suggesting a more vigorous economy. New-home sales soared 25% even as a reading on services-industry activity fell. After initially dropping as investors feared a faster Fed drawdown of quantitative easing, the Dow recovered to trade up 30 points as of 10:45 a.m. EST. Tech stocks Microsoft (NASDAQ: MSFT ) , Intel (NASDAQ: INTC ) , and IBM (NYSE: IBM ) are among the best performers, raising the question of whether they can continue to power the market higher.
There's no doubt that the tech industry has been a huge part of the stock market's rally this year, as the Nasdaq Composite (NASDAQINDEX: ^IXIC ) recently climbed above the 4,000 level for the first time since the beginning of the tech bust in 2000. Yet there is a big question about whether Dow-component companies will be the ones to benefit from the tech trend. For Microsoft and Intel, efforts to diversify beyond their reliance on PC-based products have only started to produce results, leaving them exposed to the PC market for a while longer. According to research company IDC, global PC shipments will likely finish the year down by 10%, the biggest drop in the industry's history. IDC expects further declines in future years. That's bad news for Microsoft's legacy desktop-software products and for Intel's cash-cow microprocessor business, which still dominates the PC realm.
Meanwhile, tech buyers are turning their attention to tablets. IDC's numbers peg growth in the tablet segment at more than 50%, with expectations for almost 75% more growth between this year and 2017. Microsoft is still trying to come up with an overall tablet strategy, with high-end devices that use Intel chips to try to duplicate the PC experience for less mobile-enthusiastic users, as well as more mainstream tablets to compete directly against the big players in the industry. Intel's efforts to lure buyers to ultrabooks hasn't worked as well as it had hoped, and new moves toward bolstering its mobile-chip offerings are only now starting to pan out.
In hindsight, all these challenges makes IBM's decision to make hardware a less important part of its overall business seem smart in hindsight. Yet IBM faces plenty of challenges of its own, especially as it tries to capitalize on the potential of cloud computing and data analytics in an increasingly crowded competitive environment. Sluggish recent sales have reminded investors that competition can limit IBM's upside even as it strives toward reaching its long-range earnings goals in 2015 and beyond.
Tech by itself won't rescue the Dow from a correction if it happens. But it could provide some upward momentum, especially if investors get behind the turnaround stories that Microsoft and Intel are trying to build.
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