Techs Bleed!

The preliminary Q3 GDP year-on-year growth rate of 1.6% is weaker than expected – consensus 2.1%. Profit takers use this weakness as an excuse to consolidate some gains after a week-long run-up in the equity market. Even a rise in the influential University of Michigan consumer sentiment index can’t stop the moderate sell-off, which gets strong support on the consolidated volume side – more than 4.5 billion shares change hands. Tech-laden Nasdaq, which sheds 1.2%, bears the brunt of the sell-off. It’s good to see investors pause for breadth today after the rally this week.

PG is the only folio member that defies gravity – earnings are poised to beat expectations when revealed next Tuesday. ADBE and EBAY, which have the second-highest and highest beta respectively of folio stocks, take some beating; both give up almost all gains from yesterday’s trading, a testament to the idiosyncrasies of high-beta stocks!

Nevertheless the folio this week benefits tremendously from the following changes - made to position it for higher consumer spending and colder weather this quarter:

Stock	Previous Weight	Current Weight
ADBE	0%	8%
EBAY	2%	4%
IJR	2%	3%
IWR	2%	5%
PBW	2%	3%
COST	4%	5%
EEM	7%	6%
SLV	7%	4%
PG	16%	11%
MSFT	16%	18%
IGE	18%	13%
EFA	22%	22%

The techs - MSFT, ADBE, and EBAY - gain weights since consumers tend to spend a lot more on tech hardware and software during the holiday season. PG, a consumer staple, loses some folio weight for the opposite reason that techs gain. The weight losses for IGE and SLV are just reductions in the "overweight" nature of natural resources in the folio. For comparison, the S&P index is about 12% weighted in natural resources stocks. The Japanese economy is doing well while Europe continues to impress. Therefore EFA retains its lead within the folio.

The result of these changes is impressive! The folio, which really is a new one – with the addition of ADBE, this week easily beats the Street:

Index Week return
Worst-known 3.59%
Dow 0.73%
S&P 0.64%
Nasdaq 0.36%

Yesterday, during MSFT's earnings call no one asked about life after Vista and Office 2007. One analsyt came close with a question on capex but doesn't quite hit the nail on the head. Am I the only one who wonders what MSFT's going to do with almost $34BN in cash?!!