Bruce Francis: Tech stock crunch a reality-check for investors

Bruce Francis

Bruce Francis, co-anchor of CNNfn's "Digital Jam," reports on the roller-coaster ride of the stock market in 2000.

Q: What are experts saying about the current state of the markets? Do they expect a big turnaround in 2001?

FRANCIS: That's the distressing point right now. We don't have any clear data that indicate the worst is over, especially for technology companies, which have been the driving force behind the markets for the past couple of years.

The signals are very confusing. In fact, there's a lot of fog out there. Technology companies are struggling during the fourth quarter of the year, which is typically their strongest quarter because of corporate and consumer demand kicking in. That's what usually happens, but both corporations and consumers are holding back on their purchases of technology items, from personal computers to complicated software systems that big companies use.

So, it's unclear when all this is going to shake out. This certainly calls into question the conventional wisdom that was held earlier in the year when we all thought, 'Gee, technology is just not going to be economically sensitive. Everybody is just going to make big investments to power corporate America.'

It turns out after all those increases by the Federal Reserve on interest rates have really had an effect in slowing the economy -- and, yes, technology companies are part of the economy and they are feeling the pinch. Technology companies drove this market up and now they're driving it down.

Q: We hear a lot about the 'R' word right now. Is it premature to talk about a recession, and what's it going to take to fend off a possible recession?

FRANCIS: You're right in that we're technically not in a recession right now. Recession is two consecutive quarters of decline in the economy. We haven't seen that yet. However, the growth in the economy is really slowing down rapidly. If it continues at this rate, we certainly will be in a recession.

What will it take to fend off a recession: Many observers believe quick and decisive action by the Federal Reserve to lower interest rates is something that is absolutely necessary. And there is certainly a lot of betting in the market right now that (lower interest rates) will happen. Will it happen sooner than later? That's the hope, but it's far from clear.

The Federal Reserve this week did say it is leaning toward lowering the interest rate. That's a change in its thinking, but it's not enough of a change just yet to really improve the state of the markets.

Q: Are experts recommending any good "stocking stuffer" buys this year?

FRANCIS: I find it very hard in my discussions with fund managers and stock market watchers to hear recommendations of buying things right now. Some say, 'You might want to nibble here and a position there. But take a little bit of a bite at a company after you've done some serious homework. But remember, you're not going to have a year like 1999 when the Nasdaq was up something like 86 percent.'

That's just not going to return anytime soon. In fact, it is unlikely we are going to see a quick return to the peak levels that we saw just last March when the Nasdaq was above 5,000.

Q: Did the boom times of the late 1990s make us all a bit greedy and come to expect too much from our portfolios, getting 50 to 100 percent gains a year?

FRANCIS: Those are not sustainable gains. A lot of folks are saying investors have to be braced for maybe even a couple of years of either a trendless motion in the stock market or gains more in line with historic levels of 15 to 20 percent. Those will be hard to get.

Although there's been a lot of pain, there's a lot of relief too that the market is beginning to return to some fundamentals.

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