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Tech Sector's Wrecked Week

Kevin Baker

On Wednesday, the Commerce Department released the bad news that U.S. durable goods orders, excluding transportation, fell 0.1% instead of rising 1.8% as predicted. It was the second-consecutive monthly decline in this business-spending barometer.

As a result, it was a tough week for the technology sector -- although a few tech funds did manage to survive the week unscathed.

If businesses continue to cut back on spending, delaying the purchase of new equipment, the Business Cycle Dating Committee of the National Bureau of Economic Research may look back at this period and declare it the beginning of a recession.

Beyond the patent lawsuit at Vonage Holdings (VG Quote) and accounting problem at Dell (DELL Quote), technology companies tend to be sensitive to the mood of the overall economy.

The Fed is on the lookout for spillover from the real estate recession. One such result could be that consumers will have to pass on the latest high-tech gadget as their variable rate mortgage payment skyrockets.

For the five trading days ending Thursday, March 29, the worst-performing technology fund was the Ultra Semiconductors ProShares(USD Quote). By doubling up its bet on the stocks of the Dow Jones U.S. Semiconductor Index, this exchange-traded fund lost 4.45% of its chips.

The second-worst performer, ( SMPIX Quote)ProFunds Semiconductor UltraSector ProFund, (SMPIX) lost 3.18% with its 150% exposure to the same index. The top four holdings make up more than 36% of the index, with Intel (INTC Quote) slipping 0.37%, Texas Instruments (TXN Quote) sliding 2.75%, Applied Materials (AMAT Quote) off 1.65% and Broadcom (BRCM Quote) shedding 3.30% of its value.

Another member of the index, RF Micro Devices (RFMD Quote), steered analysts toward lower estimates of its fiscal first quarter ending in June.

This drove the stock 10.24% lower for the period under review. Also, Marvell Technology Group (MRVL Quote) lost 7.25% with the delay of its annual report in conjunction with a six-year restatement of financials due to misdated stock options.

Unlike the two worst performers, the (FELTX Quote)Fidelity Advisor Electronics Fund (FELTX) managed to lose 3.01% without the use of leverage. The largest hit came from Jabil Circuit (JBL Quote), whacked for 14.2%.

Rolling disclosures of charges exceeding $54.3 million from stock option compensation, $250 million in restructuring costs and the expected restatements of the 2003, 2004 and 2005 annual reports weigh heavily on the stock.

Those investors bearish on the technology stocks are currently in the right place at the right time with the UltraShort Semiconductors ProShares (SSG Quote) powering its way to a 5.26% total return and the UltraShort Technology ProShares (REW Quote) manufacturing a 3.54% gain.

Three of the remaining five members of the B2B Internet HOLDRs Trust (BHH Quote) fell this week. But since CheckFree (CKFR Quote) had a good week and accounts for 68.6% of fund assets, the fund holds third place on our best-performing list.

The upside of moderate weakness in technology companies is the pressure put on the Federal Reserve not to raise interest rates. On Tuesday, the March reading of consumer confidence came in at 107.2, down from 111.2 in February. Without sustained confidence to spend hard-earned dollars, look for continued weakness in tech sector funds.