Gabriel: Tech Performance in July 'Very Disheartening'
DEBORAH MARCHINI, CNN ANCHOR: The markets went their separate ways again Wednesday, as the Dow gained ground and the Nasdaq headed south. Joining me to talk about the current negative sentiment toward tech stocks is market strategist Terence Gabriel of IDEAglobal. Great to have you with us, thanks for coming in.</s>TERENCE GABRIEL, IDEAGLOBAL: Thanks, Deborah.</s>MARCHINI: When the Dow and the Nasdaq diverge like this for two sessions, what's it telling us?</s>GABRIEL: Well, we need to look internally to see what it is that's driving these indices and why the Dow is moving higher and the Nasdaq is having all this trouble. Actually, several days ago, when the Dow was up, interestingly enough, major tech components within the Dow that are also in the Nasdaq, were down. We had Intel down. We had Microsoft down, IBM and Hewlett- Packard down, yet the Dow was higher. Because we're seeing strength in some of these traditional quote, unquote "safer" blue chip names like Coke, like McDonald's, like Merck, J&J;, P&G;, companies that don't deliver dynamic earnings growth at all, but perhaps can safely deliver the expected numbers.</s>MARCHINI: Why a sudden soured attitude on tech stocks?</s>GABRIEL: Well, certainly, the sentiment toward tech stocks shifted dramatically last March, and we had a significant sell-off into May. We had quite a rally back actually, from the May lows into the July reporting period. I think that the performance of a lot of tech stocks in July was very disheartening. We had companies that, of course, warned on earnings or missed earnings, were slaughtered. And we also saw companies that were reporting record earnings, basically suffering the same fate, selling off very dramatically. It seems that the market just does not have confidence in the ability of -- for these tech stocks to meet their earnings estimates moving forward.</s>MARCHINI: Does it have anything to do with the volatility in the marketplace?</s>GABRIEL: Well, I think that's part of it. We've had, of course, thinner volume since the spring, and when you have that kind of volatility, it can be very, very dangerous stepping into stocks on a short-term basis for short-term traders. And certainly, I think the lower volume suggests that institutions have been perhaps holding back and staying on the sidelines. And in that kind of thin volume, if you get burned, it certainly can create a situation where players back off, the market gets thinner, and as a result, volatility even increases further.</s>MARCHINI: You mentioned that some tech stocks that have warned, companies that have warned, have gotten slaughtered by investors. But others that have not warned have been taken down along for the ride. Do you think that the performance is warranted, that we're seeing right here? or are we creating a buying opportunity?</s>GABRIEL: Well, I mean, it looked to me as if it was a buying opportunity that was developing here. I think the point is that what we have is a bit of a divergence here between the fundamental, some of the fundamental outlook, and the technical. Certainly the trends of many of these stocks are decidedly negative, despite what are very favorable forward earnings estimates. We've seen, certainly, stocks in the semiconductor area, the equipment area, the electronic components area, selling off very hard, despite, again, very positive outlooks being delivered by industry analysts and corporate CEOs. That's very worrisome when you get that kind of divergence.</s>MARCHINI: You, alone, just about, among the analysts I've talked to recently, do not like oil companies, in spite of the fact that we're now seeing again some firming in the price of oil, it's up again today. Why not?</s>GABRIEL: Well, we still think the price of oil is headed lower. We're still somewhat concerned, and as we move forward, we're going to see the U.S. economy slow. And that we either have to see numbers which show the Fed that the economy has slowed, or we're going to see the Fed again move on rates, as we move throughout the year, to slow it, in order to bring the growth down to levels which the Fed considers more sustainable. Now, in that kind of environment, it would seem to me that deep cyclical plays, commodity plays, probably are going to come under some pressure again. And therefore, although oil companies reported very good earnings, and still may be benefiting from the rise in the price of oil, again, markets a discounting mechanism and it may start to move away from those stocks.</s>MARCHINI: All right, good to know. Good to have you with us as well, Terence Gabriel, form IDEAglobal.</s>GABRIEL: Thank you.