Monday through Wednesday of this week saw some of the worst damage to investors in stock market history - over $1 trillion lost in shareholder value. Buyers inched, and then flooded in after the S&P 500 bounced back from a trough that veteran traders hadn't seen in years. That triggered a buyers rush, as Ryan Larson, senior equity trader at Voyageur Asset Management told the Associated Press "It's a herd effect. We started going higher -- and you don't want to be the last one on the boat."
But the damage done on the technology side of the market lingers on. Look at two perennial tech giants - Microsoft and Google. Earlier today, before the bull rush, Microsoft's stock fell to its lowest levels since 1998. It's been a long time since traders saw Microsoft trading south of $20 per share, but that's where we're at with Bill Gates' former cash cow. Microsoft saw its stock drop to $18.74 in Thursday trading, its lowest 52-week low since the stock fell to $20.28 (its previous 52-week low). Analysts are blaming a fallout effect from lousy earnings news from Intel and Cisco Systems. Reuters reports that Intel slashed its fourth-quarter sales guidance by more than $1 billion Wednesday after the close of trading. And Cisco said last week that sales fell off sharply in October.
Some analysts think Microsoft is price way too low and they're likely on the money. Jefferies & Co. analyst Katherine Egbert has set a target price for Microsoft of $28 per share (down from her earlier estimate of $30 per share). She also cut earnings estimates going forward, from 53 cents per share to 52 centers per share. The reason? Wall Street is acknowledging that the economic downturn has reached the software market. Says
Oppenheimer & Co. analyst Brad Reback in a shareholder note this week, "Between the negative commentary out of Cisco last week and Intel last night, we are increasingly worried" about slowing demand at Microsoft as well as Oracle Corp. and Adobe Systems Inc.
Google set another record, of sorts, as its stock fell to $291, the first time it's dropped below $300 since 2005. The bigger picture is even more gruesome - Google's stock has declined by 44% off its 52-week high of $725 per share. Again, as with Microsoft, analysts say Google is way too cheap at even $300 per share. Mark Mahaney of Citigroup, has dropped his target price from $590 (and that was only on October 13) to $450 per share. Google's big lead over its competitors in the Internet search arena should keep Google on track, although don't expect much movement before 2009, Mahaney says.
But Mahaney, who calls the current environment as “almost surely the worst economic environment in our collective lifetimes" says online ad spending is weak and getting weaker. After a survey he completed on the Internet ad landscape, Mahaney says “We didn’t uncover a single source that thought business trends were going to improve in the foreseeable future” and “Search marketers almost universally expect this Q4 to be the weakest they have ever experienced.”
Yikes, 2009 can't come fast enough.