Tech True Believers Hard to Find

Technology stocks have done well recently, but so has everything else--Searching for Alpha, the monthly index newsletter for May

Tech stocks have been in a three-year funk, having come out of the late 1990s dot-com bubble with little more than a thready heart beat. With a slew of important product updates this year, including the Microsoft Vista operating system, I figured that this was the time to commit to the sector.

I was only partially right. Technology stocks certainly showed well in the recent earnings season, with companies including Amazon, IBM, Microsoft, and Intel posting impressive growth. But even though April resulted in big gains for stocks, the rising tide lifted all boats, as the NASDAQ posted a gain similar to that of the S&P 500 index.

The problem with high-beta indexes is their downside, of course. If tech stocks can merely keep up with their less volatile brethren during good times, they are likely to show more downside when stocks get hit. Should the equity markets exhibit a summer slowdown, a seasonal phenomenon that tends to start in May, the technology sector could fall even further behind the overall market.

An investor with a similar mindset may consider buying such shares during pullbacks. With such impressive earnings, much less leveraged balance sheets, and the potential for lower interest rates on the horizon, I'm still a believer in technology stocks.

The Monthly Index Report for May 2007

Index

Apr-07

QTD

YTD

Description
S&P 500 Index*

4.33%

4.33%

4.52%

Large-cap stocks
DJIA*

5.74%

5.74%

4.81%

Large-cap stocks
Nasdaq Comp.*

4.27%

4.27%

4.55%

Large-cap tech stocks
Russell 1000 Growth

4.71%

4.71%

5.95%

Large-cap growth stocks
Russell 1000 Value

3.70%

3.70%

4.98%

Large-cap value stocks
Russell 2000 Growth

2.62%

2.62%

5.16%

Small-cap growth stocks
Russell 2000 Value

1.04%

1.04%

2.51%

Small-cap value stocks
EAFE

4.44%

4.44%

8.70%

Europe, Australasia & Far East Index
Lehman Aggregate 0.54%

0.54%

2.05%

U.S. Government Bonds
Lehman High Yield

1.30%

1.30%

3.97%

High Yield Corporate Bonds
Calyon Financial Barclay Index**

3.86%

3.86% 1.80% Managed Futures
3-month Treasury Bill 0.43% 0.43%

1.77%

All returns are estimates as of April 30, 2007. *Return numbers do not include dividends.

** Returns are estimates as of April 27, 2007.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management. He can be reached at ben@searchingforalpha.com.

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