Wall Street Beat: U.S. Fed efforts, iPhone excitement fuel tech stock rally

Nasdaq makes gains along with broad US indexes

Tech stocks rallied Friday as markets rode a wave of euphoria over the U.S. Federal Reserve's commitment to buy bonds to boost the economy and as excitement over Apple's iPhone 5 got industry analysts talking about an "iPhone stimulus."

Other factors involved in the jump in tech shares included Facebook CEO Mark Zuckerberg's vow to generate revenue from mobile devices and advertising and reports that, despite economic pressures, IT sales would still show an overall gain this year.

Tech stocks on the Nasdaq rose in aggregate in afternoon trading by 1.07 percent. Apple was responsible for the lion's share of that gain, in the afternoon closing in on a new record high for company as shares rose by $9.27 to $692.16. Facebook rose $1.08 to $2.27.

Industry bellwethers including Microsoft, IBM, Oracle also posted share gains.

The good news was not contained to the Nasdaq. In afternoon trading, the Dow Jones Industrial Average rose by 31.45 points to 13,573.94, and the broad S&P 500 rose 5.37 to 1,465.28.

The U.S. Federal Reserve's announcement Thursday that it would launch the so-called "QE3," a third round of "quantitative easing," was widely perceived to be the immediate cause of the general run up in stocks. The Fed essentially said it would buy mortgage bonds and possibly other assets until the unemployment picture looks better. This was the first time the Fed announced such an open-ended initiative to boost the economy.

For the tech sector specifically, there also was news this week that cheered IT market watchers. Apple's launch Wednesday of the iPhone 5, due to go on sale next Friday, spurred hope that it will not only fuel the market for mobile devices and services, but also help the overall economy.

"We believe the release of iPhone 5 could potentially add between 1/4 to 1/2%-point to fourth quarter annualized GDP growth," said Michael Feroli in a JPMorgan Chase Bank research note. JP Morgan forecasts that 8 million of the new iPhones will be sold in the fourth quarter alone.

The forecast on the effect of the sales on U.S. gross domestic product caused a stir, and elicited some ridicule. But Nobel Prize-winning liberal economist Paul Krugman, a New York Times editorial page writer, supported the basic logic of the concept. Though iPhones are made outside the U.S., "most of the price you pay when you buy one is domestic value-added -- retailing and wholesaling, advertising and profits -- all of which counts as part of G.D.P.," he noted in an opinion piece Friday, adding, "It's all pretty straightforward."

Apple is also boosting the PC market, according to other analysts. Fueled "almost entirely by sales of Macs and iPads, the PC market is the only segment of the computer hardware market that will grow in 2012," according to Forrester's new global tech spending forecast, released this week.

Stirring hope for revenue growth at Facebook, meanwhile, Zuckerberg said Tuesday at the TechCrunch Disrupt conference in San Francisco that Facebook's new app for Apple's iOS mobile OS and a forthcoming app for Android will help it reach more users on mobile phones, and in turn generate ad revenue due in large part to the sheer number of users on mobile devices.

"We think we're going to make more money on mobile than on the desktop," he said.

Technical glitches marred Facebook's May 18 initial public offering, which opened at $42 but steadily declined to half that level over the next few months as doubts arose about the company's ability to generate ad revenue, especially on mobile devices. In the days since Zuckerberg's remarks at the TechCrunch event, however, the stock has started to climb again.

Looking at the overall tech market, IDC Monday said that it forecasts worldwide IT spending to increase 6 percent this year in constant currency, just under last year's 7 percent jump, in spite of continuing macroeconomic headwinds.

"In spite of economic uncertainty, which continues to inhibit enterprise investment in some tech segments, the continuing demand for tablets, smartphones, storage capacity, and network performance improvements actually outperformed expectations in the first half of the year," said Stephen Minton, an IDC vice president, in a statement accompanying the report.

In its own global IT spending outlook, Forrester also predicted growth for the year, though not as much as as it had expected.

"With two thirds of 2012 completed, it has become clear that the global tech market is not going to grow as fast this year as we had expected in January," said Forrester analyst Andrew Bartels. In constant currency, Forrester forecasts 2012 IT spending growth to be at 3.6 percent, lower than its January prediction of 5.3 percent. (The difference between the figures from different research companies lies mainly in how they define various categories of IT, notably software, services and communications.)

Bartels pointed out that, apart from the currency effects, the slowdown is concentrated in one geography A -- Europe -- and one tech product category -- communications equipment.

"Overall, though, the tech market outlook for 2012 is not bright," he wrote. "There will need to be a significant improvement in global economic growth before global tech markets will boom."

As tech vendors issue start to issue quarterly reports over the next few weeks, market watchers will get a clearer view of how the product makers themselves forecast sales growth.

Copyright © 2012 IDG Communications, Inc.

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