Mini tech bubble?

This graph shows the three-month comparative returns on the NASDAQ (blue) and the S&P 500 (Orange). As we can see, the NASDAQ and the S&P took roughly the same hit from the subprime mortgage crisis at the end of the summer. The bottom graph shows volatility, which is helpful in noticing where things got really messy from the subprime issues. Since late August, both indices have rebounded dramatically, but they are beginning to diverge.

The NASDAQ is weighted heavily with technology stocks, whereas the S&P is a more diversified index covering technology, financials, industrials, etc. Since late September we have seen a roughly 4.5% divergence in these indices. Stocks such as Apple and Google have seen outstanding runs in their share prices, but some analysts are becoming skeptical of their market valuations.

We talked in previous meetings about the tech sector as a safe haven from the mortgage crisis, which could also be a contributing factor. As tech companies report their earnings this week, we will begin to see how they are really doing. Apple is off to a good start.