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Technology stocks took a beating over the past two years, but their long-term plummet may have saved them from falling even harder than the overall market in the last few weeks.
The tech sector fell harder, faster, and earlier than other markets in 2001 and saw a slight rebound after Sept. 11 when the rest of the markets began to decline, says Jakob Holm, a portfolio manager with asset financial manager Bay Isle Financial. Because they took early hits, tech stocks didn't nose-dive in the past few weeks as much as stocks in the Standard & Poor's 500 did. Instead, they continued a more gradual decline. "Most people who don't want to have technology stocks sold them already," Holm says.
Going back to January, the InformationWeek 100 tech-stock index has been on a much steeper decline than in the past few weeks, plunging 47%, compared with the S&P's 29% falloff. The tech-laden Nasdaq dropped 25% since Sept. 11 while Dow Jones industrials fell 20%. A rebound isn't likely in the near future, because tech stocks are still relatively expensive, Holm says. "Earnings continue to be poor, and there's not a lot of good news."
But Clare Zempel, chief investment strategist and chief economist at stock broker Robert W. Baird & Co., sees tech vendors outperforming others as the economy rebounds. When companies begin to pump profits back into their businesses, they'll increase capital spending, especially for equipment, Zempel says. Equipment equates to IT at many companies.
Not all companies will rebound at the same pace. Vendors with broad offerings will outperform those with limited wares, IT economist Bruce Kratofil says. A look at the InformationWeek 100 this year reveals that the stocks of multiproduct vendors--though down considerably--outperformed those with limited product lines. Share prices of enterprise computer system and infrastructure app vendors declined 36%, on average, whereas E-business software vendors plunged 64%, and client-server and workgroup software providers plummeted 55%.