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Software volatility hurts stocks

The recent drop in information technology stocks has been driven in part by volatility among software companies, according to a new study.

A drop in information technology stocks since mid-October has been driven in part by volatility among software companies, according to a new study.

Broadview Associates' US IT Index, composed of 1,500 software, hardware, media, telecommunications, and support companies, dropped about 2.1 percent between October 18 to October 25--after virtually a flat performance since mid-September. The software products and services component of the index encountered its steepest decline during late October, after having reached its highest point in September.

"Software tends to have the most volatility within the index, and that's no surprise," said Charlie Federman, chairman of Broadview, noting that the media and content component was the most stable because of the large companies included in the index.

The index, which hit its highest level in late May to reach 99.3, has fallen 7.68 percent to an index of 92.3 today. Along the way, it hit a low of 87 in late July and rebounded to around 95 in the first half of September.

"Even though some companies reported earnings in the midrange of analysts estimates, it was not viewed positively by investors who had higher expectations," Federman said of the recent decline. "The market goes into a wait-and-see mode towards the end of the quarter, as investors wait for companies to announce their earnings."

Meanwhile, the S&P 500 faced a smaller drop during the mid- to late October range of 1.9 percent. But the S&P 500 is a less volatile index.

Broadview's index includes far more smaller companies than the S&P 500, which means more volatility. Looking ahead, Federman said he expects IT stocks to take another wait-and-see position until after the general election.