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 Dow 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), an exchanged-traded fund that targets 200% of the index's return, lost 12%, while the ( SMPIX) 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 Intel ( INTC), Texas Instruments ( TXN), Applied Materials ( AMAT), Nvidia ( NVDA) and Broadcom ( BRCM).

However, the constituents that were decimated the most were Conexant Systems ( CNXT), off 13%; LSI ( LSI), , off 11%; Asyst Technologies ( ASYT), off 11%; and Lattice Semiconductor ( LSCC), off 11%.

In third place, the Ultra Technology ProShares ( ROM) was off 7.3%. It tracks 200% of the performance of the Dow Jones U.S. Technology Index. This index is dominated by Microsoft ( MSFT), Cisco Systems ( CSCO), IBM ( IBM) and Google ( GOOG).

For an explanation of our ratings, click here .

The best performer this week is the ( SSG) 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) 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) Matthews Asian Technology Fund (MATFX), which gained 0.1%. Balancing the losers, the fund's position in China's Perfect World ( PWRD), 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 ( TCEHF) advanced 6.95% on the expectation of robust online ad sales in conjunction with the 2008 Beijing Olympics.

Worst-Performing Technology Funds
Ranked by returns for the week ending January 3
Fund Ticker Rating Fund Type 1 Week Total Return
Ultra Semiconductor ProShares USD U ETF -11.91%
ProFunds Semiconductor UltraSector ProFund SMPIX E- Open-End -8.82%
Ultra Technology ProShares ROM U ETF -7.27%
B2B Internet HOLDRs Trust BHH D+ ETF -6.67%
Semiconductor HOLDRs Trust SMH E+ ETF -5.90%
ProFunds Technology UltraSector Profund TEPIX D- Open-End -5.15%
iShares S&P GSTI Semiconductor Index Fund IGW D ETF -4.97%
Rydex Series - Electronics Fund RYSIX E- Open-End -4.65%
Powershares Dynamic Semiconductors Portfolio PSI E- ETF -4.62%
ProFunds Mobile Telecom UltraSector ProFund WCPIX E- Open-End -4.54%
Source: Bloomberg

Best Performing Technology Funds
Ranked by returns for the week ending January 3
Fund Ticker Rating Fund Type 1 Week Total Return
UltraShort Semiconductors ProShares SSG U ETF 13.36%
UltraShort Technology ProShares REW U ETF 7.18%
Matthews Asian Technology Fund MATFX B+ Open-End 0.10%
Eaton Vance Global Growth Fund EMIAX B- Open-End -0.62%
WisdomTree International Technology Sector Fund DBT D ETF -0.73%
Firsthand Technology Innovators Fund TIFQX E- Open-End -0.76%
Internet HOLDRs Trust HHH E- ETF -0.82%
Kinetics Internet Emerging Growth Fund WWWEX D Open-End -0.82%
Hartford Global Communications Fund/The HGCAX B+ Open-End -0.87%
Firsthand Global Technology Fund GTFQX C- Open-End -0.95%
Source: Bloomberg

For an explanation of our ratings, click here .

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 TheStreet.com, 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.