Tuesday, November 25, 2008

WSJ: Tech Shares May Fall Further

This time around, the slump began in the financial sector as concerns mounted over bad loans sitting on bank and brokerage balance sheets. The selling spread to technology amid worries a broad economic slowdown would curb purchases of everything from servers to services, rather than mistrust of the sector in general.

It's unclear whether those differences mean technology shares will be spared some pain or hit harder this time around. But analysts say the previous downturn offers insight as to how the current bear market may unfold. They are looking at a host of data, including bankruptcy and employment statistics, for clues as to when the market may bottom out.

A peak in bankruptcies could suggest the bottom is near because it would demonstrate weak companies are being pushed out of business. Over the course of the 2000-02 bear market, businesses bankruptcies jumped 6% to 39,201, according to the U.S. Department of Labor.

During the first six months of this year, 18,474 bankruptcies have been filed, according to the U.S. Department of Labor. But those numbers include filings by individuals, suggesting business bankruptcies still have a long way to go before reaching levels experienced earlier this decade. Jupiter Research forecasts total bankruptcies will rise 24% to 1.1 million by the end of year. They are expected to keep rising well into 2009.

Analysts are also looking at employment data for clues as to how companies are cutting costs. During the last sell-off, technology job cuts jumped from 70,700 in 2000 to 695,000 in 2001, before slipping back to 468,000 in 2002, according to Challenger, Gray & Christmas Inc. This year, they are on track to be reach 140,000, the highest in four years, but still far from 2000-02 levels, according to the firm. That could mean more layoffs are needed before companies get their costs under control.

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