Wall Street Beat: Tech stocks hold their own as markets surge

Sequestration will hurt IT spending, but tech sector growth will continue, industry insiders say

By , IDG News Service |  IT Management

With U.S. markets rallying and the Dow Jones Industrial Average hitting record highs, analysts and industry insiders are expressing a sense of sober confidence, if not exuberance, about the tech sector's prospects for the year.

The Dow Tuesday hit a milestone, surging past its prior record high in 2007, achieved before the banking crisis and subsequent recession, and then ticked up again on Wednesday and Thursday. The Dow closed Thursday at 14,329.49, up 33.25 for the day.

The tech stocks included in the Dow are holding their own: Intel, Microsoft, IBM and Cisco shares all rose Thursday. Of the tech stocks in the Dow, only Hewlett-Packard shares declined. Meanwhile, the Nasdaq Computer Index, which includes Facebook, Google and Apple, rose Thursday as all major exchanges in the U.S. marked gains.

Some upbeat economic data this week has helped fuel the rise. Payroll processor ADP, for example, said Wednesday that U.S. companies added 198,000 jobs in February. The company also revised its January figure up by 23,000, reporting that businesses added 215,000 jobs during the month. The U.S. Federal Reserve on Wednesday reported in a survey that 10 of its 12 banking districts reported "moderate growth."

Behind the macro picture, the tech sector expects growth this year despite some economic bumps. One impediment to growth is the so-called "sequestration" in the U.S. -- US$85 billion in automatic, across-the-board spending cuts that kicked in last Friday, the result of a failure on the part of the political parties to reach a budget compromise.

The sequestration caused Andrew Bartels, chief economist at market research firm Forrester, to reduce his forecast for IT spending in the U.S. Forrester now forecasts that U.S. tech spending will increase in the 6 percent to 6.5 percent range, compared to the 7.5 percent growth it forecast before the sequestration set in.

Most economists have estimated that the sequestration will shave about half a percentage point from U.S. gross domestic product growth, previously projected to be a relatively weak 2 percent or so, Bartels noted. That decline affects tech spending because of the almost certain drop in purchases of IT goods and services by government agencies, but also because reduced federal spending flows through the economy and slows overall economic growth, Bartels noted.

This will also affect the global outlook for IT spending this year. "The U.S. accounts for about one-third of worldwide IT spending," Bartels explained.

But all is not lost. "We're still fairly optimistic but not as optimistic as before the sequestration," Bartels said.

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