jai, have to agree with your comments about how the market has tended to trade in sync on "sectors" in the past. My questions about that are why, and will they continue to do it? Best answers I have been able to figure out are that the big boys who swing the biggest hammers all tend to see the same earnings factors affecting a certain group of stocks, and that creates the "sector trading" pattern.
Telecom was "boom town" for earnings back when deregulation and easy money let anybody buy equipment and build a telecom system. That led to serious over capacity, not enough revenue to keep everybody in business, and a "killing field" of cut throat competition among the telecom operators. IMO that situation is still going on, and it caused a ripple effect.
When the telecom operators stopped buying equipment, the folks who had been minting money selling that stuff got killed as well. Corning went from selling all the fiber they could manufacture to not selling enough to break even within a matter of months. Same thing with Lucent and a lot of other firms tied to that set of customers. Bad business decisions by the folks who built too much capacity for the market they wanted to serve led to earnings compression for the whole group, and that in turn defined a "sector" to be traded lower.
That's my take on the "why do sectors exist?" question. Even if we happen to agree somewhat on that, there is a good chance that we will part ways on our answers to the next question, i.e., "will the market continue to trade sectors the same way in the future?".
I don't see the same group of telecom firms emerging with strong earnings one day. I'm betting that advances in technology at just a few of the telecom players during the bad times will create some changes in the pattern. I don't see all of the former telecom leaders coming out of the current "shakeout" period in the same position. I think when the telecom "sector" comes back into favor based on improving fundamentals one of these years there will be a new cast of players showing leadership.
Bet it's no surprise that my bet in wireless tech is InterDigital, but my pick of Corvis over Lucent in the carrier equipment biz might be(been accumulating IDCC under $17 and CORV under $1.50 recently). Also like Primus at $5 and under in the operator group(had quite a ride on PRTL April of 2002 thru Nov of 2003, and it's beginning to look interesting again). Held my nose and averaged down "one more time" on my pick in the voice recognition "sector" a few weeks ago at the lowest price I ever paid for a stock, i.e. ONEV under 2 cents/share(Yikes!).
Bill Gates mentioned One Voice as being a "partner" in creating something he was demonstrating at his annual hardware show last week, and it's been "Katy bar the door" on volume ever since(In the past I always ignored the penny stock stuff as being trash, and ONEV fundamentals ARE trash, but took a shot on it anyway because of their tech and patents. From what I have seen so far it could end up changing my attitude on the pennies. Took most of my original investment in that one off the table this morning and gonna let the rest ride awhile). Anyway, before i get too far off track, what I'm trying to say is that IMO it's a market of stocks more than a market of "sectors" these days.
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