Last week, Goldman Sachs analyst David Bailey raised his rating for the hardware sector to attractive from neutral. He remains cautious "although we are not calling for an immediate improvement in corporate IT spending" but he does expect "greater upside than downside to estimates into the seasonally stronger half of the year and in 2010." Next year he forecasts increased IT spending and corporate tech upgrades. With an eye towards the glass being half full rather than empty he states "This, combined with a 25% decline in the Goldman Sachs Technology Index since the peak in August 2008, creates a compelling buying opportunity".

Also last week, Goldman Sachs software analyst Sarah Friar ups her rating on the U.S. software industry to attractive from neutral. She feels that the worse of the IT spending cuts or restraints is over ; IT spending surveys indicate software is a priority; and, like the other analyst, that the second on half of this year and 2010 will be see increased IT spending. And specific to software she sees that software has lagged telecom and media performance year-to-date (YTD); software valuations are in-line with the average S&P valuations where they usually carry a premium; currency headwinds should abate or at least be less of a factor in year-over-year comparisons; and finally, M&A activity in software is heating up.

The Business Intelligence (BI) and On-Demand Software indexes continue to outpace the broader market indexes with YTD returns of 27.8% and 35.3% respectively as of June 19. The attached chart (clink on to see a larger version) compares these indexes with broader market indexes along with a select set of high tech ETFs that have also outpaced.

BI & On-Demand Software Indexes versus Broader Market Indexes & High Tech ETFs (Click to enlarge)

After markets closed on Wednesday, Apple (AAPL) trounced expectations by reporting a 15% jump in its second-quarter earnings from a year earlier. That had to come as particularly good news for investors in the PowerShares QQQ (QQQQ).

Some argue that stocks can't go higher until there are signs of a real estate bottom. Others maintain that the markets will be handcuffed as long as unemployment is rising. And most seem to concur that stocks will suffer for as long as bad debt remains on the books of the country's largest banks.

All of these arguments sound good in theory. Then again, the mere fact that there are few who share any optimism for stock prices is instructive in and of itself; specifically, prices may go much higher much sooner... simply because the masses do not see light at the tunnel's end.

One headline reads, “Blame China if Oil Hits $100”. Given the US has had no domestic energy or proactive drilling policy for three decades while Chinese demand has grown, I suppose that’s “sort of” right.

But who cares today with oil pushing $100 when the DJIA is up 100 points? Not too many evidently.

The above message and image could be applied to boardrooms from Citigroup to Merrill Lynch. We thought over the weekend that if C ousted Prince [gone] and "came clean" [not really] about its mortgage related exposure investors might be happy since all the bad news was out. But C took what could be just an incremental step in writing off another $11B of subprime mortgages out of $55B still on the books. The company basically stated that further write offs were dependent on economic conditions through the first quarter 2008. That sounds rather "iffy", or to borrow a phrase from the Fed, "data dependent". Further, it"s reported that the company has $136B of unpriced securities on its books. These are securities that don't trade "frequently" [like never] and are priced to someone's "model". So investors are left to scratch their heads.

Global Technology ETFs
iShares S&P Global Technology Sector Index Fund (IXN)

Rydex Equal Weight Sector ETFs
Rydex S&P Equal Weight Consumer Discretionary ETF (RCD)
Rydex S&P Equal Weight Consumer Staples ETF (RHS)
Rydex S&P Equal Weight Energy ETF (RYE)
Rydex S&P Equal Weight Financials ETF (RYF)
Rydex S&P Equal Weight Health Care ETF (RYH)
Rydex S&P Equal Weight Industrials ETF (RGI)
Rydex S&P Equal Weight Materials ETF (RTM)
Rydex S&P Equal Weight Technology ETF (RYT)
Rydex S&P Equal Weight Utilities ETF (RYU)

What Are They?

As we’ve been saying: “Expect some tough talk from officialdom” regarding inflation and a desire to frighten gold bulls and dollar bears. But, tough talk followed by little action will only make gold’s reaction worse for them ultimately. Today Fed Governor Plosser said that the Fed might have to raise interest rates again to dampen inflation expectations. That produced a mild sell-off in gold but didn’t do much for the dollar.

As shown, health care and technology (which from the consensus has a lot to live up to) are beating estimates the most, while financials, consumer staples and industrials are beating the least. Telecom shows that 100% have beaten estimates but that was based on just one company.

We also look at how the stocks within the sectors are reacting to earnings beats and misses. Materials and technology stocks have had the largest one-day gains on earnings beats, while health care, materials and energy stocks that miss are getting pummeled.

click to enlarge

The equal-weight funds offer access to sectors in a way that should be different than what exists now. I wrote an article for TheStreet.com that you can read here without a subscription that goes into more detail about the composition method.