March 27, 2001

Market Sentiment Low -- and Headed Lower

Even though consumer confidence numbers showed a slight rebound this month, investors don't have much confidence in the Nasdaq. The Nasdaq remains overvalued, even though it has lost over 64% since its high last year. And investors are right to remain on alert. A third of the investors surveyed here think that the Nasdaq will tumble to 1,500 or lower. To us, 1,500 seems optimistic. We wouldn't be surprised to see the Nasdaq fall below 1,000.

The reason: As fast as stock prices have fallen, earnings are falling even faster. For example, plunging earnings are why Cisco's stock has lost 78% of its value, yet still trades at a P/E of 43.

It's not going to get better anytime soon. Tech companies in the Nasdaq are struggling to stay in business, let alone make a profit. Many companies continue to pile on debt just to stay afloat. They are trying every trick in the book just to keep investors from stampeding for the exits. But investors won't sit back and watch all of their money float away as these companies succumb to bankruptcy. The debt burden that many tech companies carry has become insurmountable, and it won't be long before investors realize this and bring the Nasdaq crashing back to reality.

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