SAN FRANCISCO -- The burden of proof has shifted back to the bulls. What other conclusion can you reach when Transmeta's (TMTA:Nasdaq) 117% rise on its first day of trading is dubbed insufficient? Or when Cisco's ( CSCO) 66% revenue jump proves good enough for Cisco, but a host of other companies get slammed by Cisco's report of increasing inventories and a slowdown in orders by telecom concerns? Hardest hit were specialty chipmakers such as PMC-Sierra ( PMCS) and Broadcom ( BRCM), as well as contract manufacturers such as Flextronics ( FLEX). Many will say the market was just waiting to see the election results, which certainly contributed to today's near imperceptible declines. The Dow Jones Industrial Average fell 0.2% while the S&P 500 and Nasdaq Composite fell by less than a point each. But many of those saying the market was hanging on the exit polls today were the same people who declared "Just wait 'til we get past preannouncements and into earnings" in September and "Just wait until October is over" last month. Now that the election, which remains too close to call at this hour, is (almost) over, I wonder what the market is going to be "waiting for" next? If the waiting is the hardest part, consider the fundamental picture, which has slipped a bit since we last reviewed on
Oct. 31 . First, the euro fell despite back-to-back days of intervention by the European Central Bank; it fell again today when the ECB did nothing. Second, oil and gas prices are creeping higher again; crude futures rose 1.8% today in New York Mercantile Exchange trading, while natural gas futures soared nearly 5% on fears that inclement weather currently in the Dakotas will slam the Midwest next week. Third, recent economic data, such as Friday's employment report, laid to rest (for now, at least) the already remote possibility of a Federal Reserve ease anytime soon, even as other data and companies such as Cisco indicate business activity is clearly slowing from the heady levels of recent years. On that final point, Thomas Galvin, U.S. portfolio strategist at Credit Suisse First Boston, revisited his credit crunch theory in his weekly commentary, released yesterday. Galvin's theory remains much the same as in August, when he predicted a 60% chance of a Fed ease by March 2001. This week Galvin provided a more vague "Spring 2001" timetable for such action, noting "the credit crunch remains highly selective and therefore so far a micro rather than macro issue." That's a small, but not insignificant, alteration, especially given Galvin was ahead of the curve in predicting the switch to a focus on a possible Fed ease in the first place. Those developments, plus the seemingly illogical selling that goes on in given names and sectors on a daily basis, compel me to repeat my previous call: Unless you're paid to trade, tread cautiously until the averages break out of their trading ranges. last night's political opining: We now return to our regularly scheduled programming. Jeffrey Applegate, chief investment strategist at Lehman Brothers, noted tech stocks' 27 basis point underperformance vs. the S&P 500 the past 33 weeks (concluding Nov. 3) is the sector's worst showing vs. the index since 1993. But in the week's least shocking development, Applegate predicts the latest "tech stock swoon" is about to end and tech stocks will start outperforming again. Why? Because the "growing confirmation of a non-inflationary, investment-led soft landing for the economy" will put a premium on both earnings growth and productivity. Both favor tech stocks, he wrote. Additionally, tech stocks are now trading at about the same price/earnings-to-earnings growth (PEG) rate as the S&P 500 overall, Applegate wrote. (In a piece published today, Steven B. Young, senior market strategist at Banc of America Capital Management, made a similar argument. The PEG of the Nasdaq 100 was about 4.5 times in March vs. 2.4 for the S&P 500, he observed. Today, the NDX's PEG ratio is 2.4 vs. 1.4 for the S&P 500.) "That's appropriate valuation if tech fundamentals are no better than the market," Applegate concluded. "We'd submit they aren't." (Translation: They are better.) My criticism of Applegate's otherwise reasoned case for growth stocks is that he hasn't wavered from it at all this year. This week he wrote that tech stocks got "overvalued" in February. Anyone recall him saying as much at the time? The most compelling issue in GuruLand this week is an unintended debate between CSFB's Galvin and Thomas McManus, equity portfolio strategist at Banc of America Securities. This "Battle of the Toms" was fought over the most recent mutual fund inflow figures, which totaled $17.3 billion in September vs. $23.4 billion in August, according to the Investment Company Institute. Despite the slowdown -- and preliminary reports October may have seen net outflows from equity funds -- Galvin is encouraged by evidence "individual appetites for stocks remain hearty" despite the market's volatility. "Our sense is that unless we were to experience a real economic recession with a significant rise in unemployment, the cash will keep coming in," he wrote. But one man's meat is another man's poison. Counters McManus: "We have yet to experience a wave of mutual fund liquidation notices in today's environment, and that is one reason we have yet to ratify the consensus view that October's lows marked an important market bottom." The debate hinging on which you believe is more important: liquidity or fundamentals. For those still gnawing over this dilemma, consider Pets.com ( IPET), which announced plans to close its operations today. In February, the online pet supply company with the great mascot briefly sported a market cap over $400 million.