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WALL STREET REPORT Q &
A
Technology the engine
for stock market 2000
by Andrew Leckey
Wall Street Report
No
need to wait for the millennium to trigger changes in the investment world.
Good old 1999 is doing fine on its own.
It's
clearly tech's time.
Not
only did Microsoft recently join the Dow 30 industrials, it became the ultimate
headline-grabber as a U.S. District Court judge ruled it is a monopoly that
has abused its power. No one can predict the final outcome of this antitrust
case, whether it ends in a legal judgment or out-of-court settlement, but
it's yet another indication that technology is a focal point of our economy.
"Some
people may see that the Dow has boosted its tech representation and it might
cause them to examine their portfolio to see if they can get it up to speed,"
said Charles Carlson, co-manager of Strong Dow 30 Value Fund in Hammond,
IN. "But, in many ways, I think investors are ahead of the indexes
and own the Microsofts, Intels and Ciscos already.
It's
also the era of investor convenience, when most anyone can trade, even when
things go bump in the night.
After-hours
trading is a rallying point of investors and hypertraders alike who insist
on doing everything right now. Availability of electronic communications
networks (ECNs), such as Instinet and Island ECN, enable traditional and
on-line brokerages to forge alliances with ECNs so their customers can enjoy
extended trading hours. In addition, the Chicago Stock Exchange has extended
its trading hours until 6:30 p.m. Eastern time and the New York Stock Exchange
has plans to extend its hours next year.
"Joe
Sixpack doesn't have to change how he invests due to extended hours, since
his primary investments are in his 401(k) retirement plan at work that isn't
actively traded," emphasized Sam Stovall, senior investment strategist
with Standard & Poor's in New York. "Extended hours do, however,
increase the efficiency of the markets because stocks are reacting to information
that takes place on a minute-by-minute basis."
A
formal sign the times are a-changin' is the addition of Microsoft, Intel,
SBC Communications and Home Depot to the Dow Jones industrials average to
give it the technology, telecommunication and home improvement style of
the pending century. Deleted were long-time components Chevron, Goodyear
Tire & Rubber, Sears, Roebuck and Union Carbide.
This "new
wave" Dow 30 consists of AlliedSignal (to become Honeywell International
by year's end due to its merger with Honeywell), Alcoa, American Express,
AT&T, Boeing, Caterpillar, Citigroup, Coca-Cola, DuPont, Eastman Kodak,
Exxon, General Electric, General Motors, Hewlett-Packard, Home Depot, IBM,
Intel, International Paper, J.P. Morgan, Johnson & Johnson, McDonald's,
Merck, Microsoft, 3M, Philip Morris, Procter & Gamble, SBC Communications,
United Technologies, Wal-Mart Stores and Walt Disney."If
you stay focused on traditional blue-chip names and don't have technology
or telecommunications stocks in your portfolio, you're taking the risk you'll
miss out on some of the fastest-growing sectors in the economy," pointed
out David Brady, senior portfolio manager with Stein Roe & Farnham in
Chicago. "When the telephone, automobile and airplane were invented,
they were also all-new at the time, but still part of an evolutionary process
in a growing, dynamic U.S. economy."When
the Dow average first appeared in 1896, it had a dozen stocks. The only
original Dow component still in the average is GE. The average increased
to 30 names on Oct. 1, 1928, when it closed at 240.01.Originally,
Charles Dow simply added up the stocks' closing prices and divided by the
number of issues. Today a divisor is used that regularly recalculates for
stock splits, spinoffs and other changes in the component stocks. A $1 rise
in any of the 30 stocks of the Dow represents an increase of about five
points in the average."Eighty
percent of the U.S. economy is now service-oriented and not manufacturing-oriented,"
said Stovall. "A blue-chip is a company with well-known products and
services that's been around a while and is a leader within its industry,
but that doesn't make it a Rust bowl member."After-hours
trading is a concept that has yet to win over average investors, due to
some justifiable fear of the unknown."People
need to understand that if they're sitting in their living room trading
stocks at 7:30 at night, it's a whole different ballgame than trading at
2 in the afternoon" said Carlson. "Thin markets can have an impact
on volatility and the stock price, making this dangerous turf for the individual
investor."Trading
through ECNs tends to be more quixotic, with a broader spread between the
"bid price" (what an investor is willing to pay to buy a stock)
and "ask price" (the price at which an investor wants to sell)
than is the case at traditional exchanges during regular trading hours.
Experienced traders fare better than novices in playing this trading game."Focus
on fundamentals and don't be too reactive to all the news out there that's
available," concluded Brady. "Just because something happens late
at night or there are extended hours doesn't mean you have to abandon a
buy-and-hold philosophy that creates value for your portfolio."When
2000 kicks into gear, technology is expected to gain more power and momentum,
while trading evolves into new, accessible forms we can't predict. But as
the century winds down, we're just trying to keep pace with the present.