No Fooling! Dow Jumps 75 As Cisco Pulls Tech Stocks Higher

Cisco Systems led all Dow stocks with a 3% gain Tuesday. Find out what its gains mean for other tech stocks and for the broader market.

Apr 1, 2014 at 9:00PM
Longview

The Dow Jones Industrials (DJINDICES:^DJI) got a little closer to a new all-time record Tuesday, starting the second quarter with a gain of almost 75 points. Yet even though the gains for the Dow brought the average to within 50 points of new highs, they still paled in comparison to the rise in the Nasdaq Composite (NASDAQINDEX:^IXIC), which soared 1.6% helped from positive contributions from Dow components Cisco Systems (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT). Given the weight that tech stocks have within the Dow, further positive days for the sector could quickly send the Dow to new heights.

Csco

Source: Cisco.

In many ways, both Cisco and Microsoft are gaining in the hopes that the two tech giants can rejoin many of their peers in restarting their respective growth engines. For Cisco, which jumped 3% today, the most important strategic vision the company has pursued lately has been its cloud-computing and data-analytics business. With heavy competition from fellow Dow peer IBM (NYSE:IBM) and a host of other players in the industry, Cisco still needs to demonstrate its ability to play in the space from its stronghold in networking and communications. A billion-dollar investment plan in the cloud is just a first step toward Cisco being able to demonstrate its expertise in the area, and until it produces a more visible success, some shareholders will be skeptical about Cisco's ability to capitalize on the budding technology.

Microsoft's 1% rise today was just a small addition compared to the extensive share-price gains the software giant has seen lately. But as with Cisco, Microsoft is inspiring value investors who still see the potential for faster growth from the company's various divisions. With a solid base from its office software and operating system areas, Microsoft can afford to take risks with the rest of the company, especially given the huge cash hoard Microsoft has set aside in various overseas subsidiaries. Some will argue that Microsoft stock has come too far too fast, but after a decade of underperformance compared to many of its peers, longer-term investors might well see recent moves as just the beginning of a brighter future for Microsoft.

Tech has huge potential to push the Dow to new records. If stocks in the sector can sustain their recent gains, then smart investors could find new ways to make the most of the tech trend and boost their total returns accordingly.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and owns shares of IBM and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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