IBM’s Best Day Ever (IBM)

By | Published April 22nd, 2014

Bullish euphoria intensified in the final quarter of 1999 as investors piled into stocks, namely tech securities, amid the raging bull market on Wall Street. In retrospect, the Nasdaq had reached its peak by April in 2000, although it wasn’t until the end of the year that the Dow Jones Industrial Average and S&P 500 Index confirmed the bearish reversal taking place. It is prior to this tumultuous stretch in Wall Street’s history that International Business Machines (IBM) saw its best trading day of all time.

On April 22nd, 1999, IBM saw a stellar one-day gain of 13.17%. The stock’s steep gain was a result of a number of factors working in tandem, which in hindsight combined to form the perfect fuel for a rally. For starters, bullish momentum had been a driving force behind IBM’s stock well before its best day ever; the company was enjoying a stellar multi-year uptrend, gaining 30%, 24%, 65%, 38%, and 76% in 1994 through 1998, respectively.

Second, IBM’s stock was beat-down heading into earnings season in 1999, following a stellar finish the prior year; shares of “Big-Blue” were down 7% from the start of the year through 4/21/1999. Third, and most importantly, came the catalyst that sparked IBM’s massive one-day jump. In this instance, as is the case with many other tech stocks, earnings results served as the fundamental tailwind that led to the stock’s best trading day [see also Microsoft's Best Day Ever (MSFT)].

IBM reported stellar first-quarter earnings on 4/22, posting net income of $1.5 billion for the quarter and marking an impressive 42% improvement from its first quarter results in the year ago period. Even more bullish was the fact that IBM posted such impressive results during its first quarter, which is traditionally the firm’s slowest quarter of the year; this in turn prompted many analysts to revise their full-year target higher.

As the trading bell rang on the morning of the 22nd, investors piled into “Big Blue” after it smashed analysts’ expectations for the quarter, and the stock rallied $11, or 13.17%, settling at $97.25 a share by the end of the day.

IBM

IBM went on to extend its gains in the weeks following; shares rallied an additional 42% after 4/22 until reaching their peak on 7/13/1999 at $137.88 a share.

The Mood of the Times

The mood during the year spanned from bullish to very bullish; all in all, domestic equity markets “partied like it was 1999″ so to say. IBM’s upbeat earnings results helped bolster investors’ confidence levels, lifting the technology sector higher as a whole that day and in the weeks following. At the heart of this wave of optimism was encouraging commentary from the company’s CEO, Lou Gerstner, who noted improving business conditions in Asia, as well as double-digit revenue growth out of Europe and the Americas.

Perhaps most encouraging was the fact that IBM’s PC sales soared 50% from the year prior; as expected, this lifted shares of software and hardware makers alike, given the rosier prospects for the still blossoming personal computer industry. The company’s CFO, Doug Maine, commented, “There is an absence of anything we are hearing from customers that suggests a slowdown of spending.” While this quote certainly added fuel to the rally, Maine went on to make a fair warning, which received little attention at the time, but in hindsight proved to be correct when he said that, “the impact of the year 2000 is uncertain.”

Shares of IBM proceeded to rally through the end of the second quarter in 1999, and profit taking pressures knocked the stock lower prior to the turn of the year. Nonetheless, IBM remained resilient and tried to reclaim its peak from the year prior on a handful of occasions during the year 2000, before finally giving into broad selling pressures as bearish sentiment slowly blanketed Wall Street that year.

IBM-Monthly

In retrospect, IBM was stuck in a frustrating multi-year range from when the tech bubble burst through the most recent financial crisis.

The Bottom Line

As of the start of April 2014, shares of IBM have gained approximately 200% since enduring their best day ever on 4/22/1999. While it’s true that this longer-term return pales in comparison to that of Apple’s, the takeaway here is that investors need to do their homework and stick with their convictions, during both the prosperous as well as the uncertain times. The market is always willing to test your conviction before it rewards you generously, which is why investors ought to keep calm in times of volatility in lieu of giving into panic-induced emotions.

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