By L.A. Little
Last Thursday, Intel raised their second-quarter and full-year sales outlook as a result of stronger-than-expected demand for business PCs, but the news was largely ignored as the rebel advance on Baghdad garnered all the attention that day. Other than a boost to Intel stock, the market traded lower, despite the fact that a major component in most indexes was telling us that things were appreciably better than expected.
Earnings are what ultimately move markets, and what has been sorely lacking for a very long time is increased sales that can drive higher earnings. Intel /zigman2/quotes/203649727/composite INTC +0.02% is saying that picture is improving, at least for businesses and that they are deciding to replace capital equipment finally. It's the sort of event that can lead to increased sales across a much wider spectrum than just INTC.
Microsoft /zigman2/quotes/207732364/composite MSFT +1.01% is probably the most obvious beneficiary for the add-on effect and a look at their chart shows that they have and continue to press higher in price. It doesn't hurt that they discontinued support for hugely popular XP OS back in April, as that naturally spurred upgrade decisions in the business sector space and will likely continue to for a while to come.
Elsewhere, semiconductor stocks in general have been on a tear in advance of this INTC news as judged by the PHLX Sox Semiconductor Sector Index /zigman2/quotes/209255350/composite SOXX +0.81% , which has been pressing steadily higher since April and is now nearing the completion of it's bullish ABCD structure target.
The real question, though, is whether businesses felt forced into an upgrade cycle and had to do so , or if they feel better about their outlook and have decided to make capital investments in a broader way. If the latter, then a whole host of other sectors could get a boost, like software vendors, as tracked by the iShares North American Tech-Software ETF /zigman2/quotes/201870252/composite IGV +1.11% , which, if it can get up and over the $85 level, could easily make new highs again.
Looking further down the chain, what about office equipment and furnishings? A company like Knoll /zigman2/quotes/202405595/composite KNL +0.93% , which had a nice earnings surprise in April might be poised for a repeat surprise in July.
If corporate spending really is picking up, then those increased expenditures will be felt across a broader swath of companies, not just the semiconductor sector. With the next earnings season but a mere three weeks away, and with the potential for a squeeze higher into the end of the quarter on performance anxiety, this doesn't appear to be the time to be betting against this latest market advance.
Disclosure: Little is long KNL.