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May 24, 2000

US pre-open: Further technology, media, and telecommunications weakness likely
By Dave Shellock, Financial Times

Techs Set to Fall Even More...Weiss comments

LONDON - US technology stocks may see further selling on Wednesday if early trading in the futures market is any indication.

The June Nasdaq future on Globex was trading below fair value, indicating a soft start for the cash market. S&P; futures, however, were pointing to an opening bounce of some 80 points for the Dow Jones Industrial Average.

It may be that another heavy fall for the Nasdaq composite index will attract some bargain-hunting. The index has now fallen more than 1,800 points from the record high set last March and some analysts have suggested that the market is beginning to look oversold.

But investors are unlikely to want to start taking on large positions until the prospects for US interest rates are a little less murky. Many observers are expecting the Federal Reserve to raise short-term rates by at least another half percentage point before the end of the summer.

One focus for the market will be UAL's agreement to buy US Airways for $4.3bn. UAL, the parent company of United Airlines, is paying $60 a share, representing a 137 per cent premium to US Airway's closing price on Tuesday.

Plunging to its lowest close of the year yesterday, the Nasdaq is set to fall even further in the days ahead.

Why? As we have been saying for quite some time, interest rates matter. Though many 'new economy' pundits have been saying that a rise in interest rates surely would not effect tech stocks as much as traditional blue chips, recent events tell a completely different story. The Nasdaq has dropped over 35% in value since its high on March 10.

Wall Street analysts are now 'confidently' predicting another half-point hike in interest rates. And we know how often they're right. Don't be surprised to see at least a half-point hike. And, look for the still-overvalued tech stocks to get slaughtered in the coming months.

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