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Economic Woes Wilt Tech Funds

Semiconductor stocks, in particular, are highly cyclical.

Semiconductor stocks show extreme sensitivity to economic conditions. If consumer product companies plan to cut the number of units they produce to survive a downturn, they'll order fewer semiconductor chips.

So, the steady drumbeat of bad news about the economy over the past week and increased calls for a recession were not good for the technology sector.

It started with a report last Friday showing November new home sales plummeting 9% sequentially and 34% year over year. That's the biggest annual drop since the 1990-1991 recession under the Bush Administation.

Other bad signs included an 12% drop in mortgage applications for the week of Dec. 28 and the ISM Manufacturing index at 47.7 for December. A reading below 50 shows contraction in manufacturing activity.

All the talk of recession roiled the stock market. The


shed 2.23%, the

S&P 500

slipped 2%, and the tech-heavy

Nasdaq Composite

gave up 2.8% for the week ending Thursday, January 3.

The average tech fund, excluding leveraged and inverse funds, lost 2.8% over the same period.

The two worst-performing tech funds for the week ending Thursday both track the daily performance of the Dow Jones U.S. Semiconductor Index.

The Ultra Semiconductor ProShares

(USD) - Get Report

, an exchanged-traded fund that targets 200% of the index's return, lost 12%, while the

(SMPIX) - Get Report

ProFunds Semiconductor UltraSector ProFund (SMPIX), an open-end mutual fund that tracks 150% of the index, sank 8.8%.

The semiconductor index's five largest constituents include


(INTC) - Get Report


Texas Instruments

(TXN) - Get Report


Applied Materials

(AMAT) - Get Report



(NVDA) - Get Report




However, the constituents that were decimated the most were

Conexant Systems

(CNXT) - Get Report

, off 13%;


(LSI) - Get Report

, , off 11%;

Asyst Technologies


, off 11%; and

TST Recommends

Lattice Semiconductor

(LSCC) - Get Report

, off 11%.

In third place, the

Ultra Technology ProShares

(ROM) - Get Report

was off 7.3%. It tracks 200% of the performance of the Dow Jones U.S. Technology Index. This index is dominated by


(MSFT) - Get Report


Cisco Systems

(CSCO) - Get Report



(IBM) - Get Report



(GOOG) - Get Report


For an explanation of our ratings, click


The best performer this week is the

(SSG) - Get Report

UltraShort Semiconductors ProShares , an exchange-traded fund that seeks 200% of the inverse performance of the Dow Jones U.S. Semiconductor Index, which gained 13%. The similarly designed

UltraShort Technology ProShares

(REW) - Get Report

did half as well, returning 7% for the period tracking a 200% opposite return of the Dow Jones U.S. Technology Index.

The only technology fund avoiding a loss this week without the use of negative leverage was the

(MATFX) - Get Report

Matthews Asian Technology Fund (MATFX), which gained 0.1%. Balancing the losers, the fund's position in China's

Perfect World


, climbed 8.2% with the launch of a new expansion pack for its "Legend of Martial Arts" 3D online game. Another Chinese winner,

Tencent Holdings


advanced 6.95% on the expectation of robust online ad sales in conjunction with the 2008 Beijing Olympics.

For an explanation of our ratings, click


This morning, the Bureau of Labor Statistics announced December's change in nonfarm payrolls came in at 18,000, not enough to keep up with population growth. With this, the unemployment rate unexpectedly jumped to 5.0%.

The chief of the organization that officially marks the start and finish of business cycles, Martin Feldstein, put the probability of a recession in 2008 at 50%. To head this off, President Bush's economic team is likely to be prepping a stimulus package to be announced during the State of the Union message later this month. Plus, the

Federal Reserve's

next meeting is on Jan 30 and more interest rate cuts are likely.

So, don't panic. The economy might yet be rescued. As both Iowa caucus winners would say, "You must have hope for positive change."

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.