Tech and Bank Stocks on Collision Course

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David Callaway

April 21, 2011, 12:01 a.m. EDT

View all David Callaway "º

"¹ Previous Column

Why the government should shut down

First Take "º

Recession cost Uncle Sam $4.2 trillion

By David Callaway, MarketWatch

SAN FRANCISCO (MarketWatch) "” Solid earnings by big tech companies this week ignited technology shares and put concerns about the Japanese earthquake's impact on future earnings squarely behind the market.

The question now is whether the tech rally can finally help lift the moribund financial services sector out of the doldrums or whether persistent weakness in banks and on Wall Street will hobble a U.S. economy that appears ready to run.

Researchers have found that Apple devices like the iPad and iPhone are logging user data like locations and time stamps. WSJ's Jen Valentino-DeVries reports.

As much as I love a good tech rally "” even a bubble if you want to call it that "” my money is on the banks playing bogeyman at some point in the next few months. And it could manifest itself in a huge escalation of the battle between Wall Street and Washington over new regulation, specifically the Dodd-Frank reform bill.

Tech stocks, as measured by the Nasdaq Composite Index /quotes/comstock/10y!i:comp COMP +0.57%  have been on a roll almost since a few days after the Japan quake on March 11, closing in on their highs for 2011 and almost certain to top Nasdaq 3,000 for the first time in a decade sometime later this year if not sooner.

Amazingly, shares of Intel Corp. /quotes/comstock/15*!intc/quotes/nls/intc INTC +0.36%  still call the shots after all this time, while shares of Cisco Systems Inc. /quotes/comstock/15*!csco/quotes/nls/csco CSCO -0.21%  have been confined to the Internet bubble scrap heap. Indeed, Intel is still capable of triggering not just a rally across the tech sector, in areas like semiconductor equipment makers, it can lift the market's entire sentiment, in the U.S. and across the world. See story on Intel share rally Wednesday.

Apple Inc. /quotes/comstock/15*!aapl/quotes/nls/aapl AAPL +2.91% shares also remain a darling, especially after the company trounced earnings expectations on Wednesday and put aside any concerns about its manufacturing supply chain due to production problems in Japan. See story on Apple earnings Wednesday.

But the numbers coming from banks such as Wells Fargo & Co. /quotes/comstock/13*!wfc/quotes/nls/wfc WFC -0.94% , hurt by continued weak loan demand, contradict the buoyant market for corporate buying of tech products. See story on Wells Fargo earnings and share decline.

The earnings from the likes of Goldman Sachs Group Inc. /quotes/comstock/13*!gs/quotes/nls/gs GS +0.38%  , J.P. Morgan Chase & Co., /quotes/comstock/13*!jpm/quotes/nls/jpm JPM +0.18%  , Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c C -0.98%  , and Bank of America Corp. /quotes/comstock/13*!bac/quotes/nls/bac BAC +0.65%  , have also been dogged by weak lending and lackluster institutional activity among clients.

/quotes/comstock/13*!xlf/quotes/nls/xlf XLF 16.09, +0.08, +0.50%

A chart of the popular Financial Select Sector SPDR ETF /quotes/comstock/13*!xlf/quotes/nls/xlf XLF +0.50%  shows the fund remains near its low for the year, in stark contrast to the Nasdaq or any other big tech vehicles.

This may indicate that a lot of the corporate spending driving tech might be replacement equipment from companies that postponed investment decisions during the crisis, as well as the continued consumer frenzy around anything Apple.

It certainly indicates that either tech stocks are ahead of themselves or bank stocks are behind the curve. From everything we can see from the Federal Reserve Board's insistence on maintaining easy money for the economy as long as possible, it's clear that Ben Bernanke & Co. view bank weakness as a primary concern right now.

With all the institutional, private equity and retail money sitting on the sidelines or still in bond funds waiting for the signal to leap elsewhere, any sign of a rebound in bank lending or renewed activity in weak markets such as securitization would be a huge sign that the bull is alive and economic growth is set to continue.

This is why bank leaders and others in the industry "” stand up former Fed Chief Alan Greenspan "” are so quick to attack any new regulation as unhelpful and possibly hurtful to bank recoveries. Expect a long summer of battles in Washington over Wall Street reform, with bank stocks hostage to the bitter struggle between those who want to take make the industry safer for consumers and those who just want to return to business pre-Lehman.

In the end, some sort of reform will be politically necessary, though it could be severely watered down from where it currently stands by the Republican-led House of Representatives.

Until then, and as long as banks remain weak and investor funds shy away from bank and investment bank stocks, it's difficult to see how we go much further from here in the overall stock market before some sort of financial industry scare ruins the tech coming-out party.

/quotes/comstock/10y!i:comp Add COMP to portfolio COMP Nasdaq Composite Index 2,818.55 +16.04 +0.57% Volume: 333.05M April 21, 2011 2:35p var embeddedchart1186512883Chart = new EmbeddedChart('#embeddedchart1186512883', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:COMP'); jQuery.data($('#embeddedchart1186512883').get(0), 'embeddedchart', embeddedchart1186512883Chart); /quotes/comstock/15*!intc/quotes/nls/intc Add INTC to portfolio INTC Intel Corporation $ 21.49 +0.08 +0.36% Volume: 57.74M April 21, 2011 2:36p var embeddedchart668544352Chart = new EmbeddedChart('#embeddedchart668544352', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:INTC'); jQuery.data($('#embeddedchart668544352').get(0), 'embeddedchart', embeddedchart668544352Chart); /quotes/comstock/15*!csco/quotes/nls/csco Add CSCO to portfolio CSCO Cisco Systems Inc $ 16.90 -0.04 -0.21% Volume: 42.13M April 21, 2011 2:36p var embeddedchart1623182370Chart = new EmbeddedChart('#embeddedchart1623182370', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:CSCO'); jQuery.data($('#embeddedchart1623182370').get(0), 'embeddedchart', embeddedchart1623182370Chart); /quotes/comstock/15*!aapl/quotes/nls/aapl Add AAPL to portfolio AAPL Apple Inc $ 352.38 +9.97 +2.91% Volume: 22.34M April 21, 2011 2:36p var embeddedchart2053059580Chart = new EmbeddedChart('#embeddedchart2053059580', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:AAPL'); jQuery.data($('#embeddedchart2053059580').get(0), 'embeddedchart', embeddedchart2053059580Chart); /quotes/comstock/13*!wfc/quotes/nls/wfc Add WFC to portfolio WFC Wells Fargo & Co $ 28.56 -0.27 -0.94% Volume: 50.09M April 21, 2011 2:36p var embeddedchart1999992832Chart = new EmbeddedChart('#embeddedchart1999992832', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:WFC'); jQuery.data($('#embeddedchart1999992832').get(0), 'embeddedchart', embeddedchart1999992832Chart); /quotes/comstock/13*!gs/quotes/nls/gs Add GS to portfolio GS Goldman Sachs Group Inc $ 153.28 +0.58 +0.38% Volume: 3.13M April 21, 2011 2:36p var embeddedchart1685131760Chart = new EmbeddedChart('#embeddedchart1685131760', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:GS'); jQuery.data($('#embeddedchart1685131760').get(0), 'embeddedchart', embeddedchart1685131760Chart); /quotes/comstock/13*!jpm/quotes/nls/jpm Add JPM to portfolio JPM JPMorgan Chase & Co $ 44.64 +0.08 +0.18% Volume: 16.56M April 21, 2011 2:36p var embeddedchart124732459Chart = new EmbeddedChart('#embeddedchart124732459', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:JPM'); jQuery.data($('#embeddedchart124732459').get(0), 'embeddedchart', embeddedchart124732459Chart); /quotes/comstock/13*!c/quotes/nls/c Add C to portfolio C Citigroup Inc $ 4.53 -0.05 -0.98% Volume: 201.71M April 21, 2011 2:36p var embeddedchart372029407Chart = new EmbeddedChart('#embeddedchart372029407', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:C'); jQuery.data($('#embeddedchart372029407').get(0), 'embeddedchart', embeddedchart372029407Chart); /quotes/comstock/13*!bac/quotes/nls/bac Add BAC to portfolio BAC Bank of America Corp $ 12.35 +0.08 +0.65% Volume: 66.91M April 21, 2011 2:36p var embeddedchart728891016Chart = new EmbeddedChart('#embeddedchart728891016', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:BAC'); jQuery.data($('#embeddedchart728891016').get(0), 'embeddedchart', embeddedchart728891016Chart); /quotes/comstock/13*!xlf/quotes/nls/xlf Add XLF to portfolio XLF Financial Select Sector SPDR ETF $ 16.09 +0.08 +0.50% Volume: 32.30M April 21, 2011 2:36p var embeddedchart1488405048Chart = new EmbeddedChart('#embeddedchart1488405048', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:XLF'); jQuery.data($('#embeddedchart1488405048').get(0), 'embeddedchart', embeddedchart1488405048Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});

David Callaway is editor-in-chief of MarketWatch.

Add Comment › · Recommend (4) · Post: Alert Email Print More David Callaway April 7, 2011 Why the government should shut down March 31, 2011 Six threats to stocks in the second quarter March 28, 2011 Geraldine Ferraro "” the mom behind the pol March 9, 2011 Investor lessons as bull market turns two March 3, 2011 Oil price surge not a recovery killer Explore related topics Computer Hardware Computer Software Nasdaq Composite Index Intel Corporation Cisco Systems Inc Apple Inc Comments Screener About David Callaway

David Callaway is editor-in-chief of MarketWatch, responsible for the global news coverage of 100 journalists in 12 bureaus in the U.S., Europe and Asia. A financial journalist for more than 20 years, Callaway has worked for Bloomberg News, the Boston Herald, and assorted television and cable stations as a reporter, columnist and commentator.

First Take Recession cost Uncle Sam $4.2 trillion

The federal government was spilling a lot of red ink even before the bubble burst in 2007, but the Great Recession turned the leak into a $4.2 trillion geyser, writes Rex Nutting.

11 min ago2:25 p.m. April 21, 2011

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"Tech and bank stocks on collision course: The tech-stock rally on earnings this week removed a major obstac... http://on.mktw.net/hTlTBF" 11:53 p.m. EDT, April 20, 2011 from dcallaway

"Best Nasdaq day this year. 3,000 for the first time in a decade just around the corner. http://bit.ly/ef63ez" 5:31 p.m. EDT, April 20, 2011 from dcallaway

"What tech bubble? Tech earnings surprisingly strong last quarter." 9:11 a.m. EDT, April 20, 2011 from dcallaway

"Why the government should shut down: The U.S. government has already been shut down by some measures. A rea... http://on.mktw.net/i4kaSd" 4:09 p.m. EDT, April 7, 2011 from dcallaway

"Why the government should shut down: The U.S. government has already been shut down by some measures. A rea... http://on.mktw.net/fUkA7q" 11:52 p.m. EDT, April 6, 2011 from dcallaway

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