There was no shortage of fear-generated adrenalin on Wall Street this week. The scary correction that started on Tuesday in Shanghai and spread to major markets across the globe hit technology stocks hard -- and tech investors even harder.
"It was an 'Oh my God,' sort of week, and we're going to see more in next few weeks," says Pip Coburn, a former global technology strategist for UBS who now runs his own investment group.
But even as the week ended on yet another down note, there was a strong sense that the correction we're seeing is nothing like the tech wreck of 2001.
"We have not seen indications that everyone is running for the doors," says Stacey Briere Gilbert, chief options strategist at Susquehanna Financial Group. As evidence, she points to the change in buying patterns during the week.
On Tuesday, there was very heavy buying of the
, with puts outnumbering calls 3 to 1. "People were buying protection," says Briere.
But by Wednesday, investors had caught their breath, and Briere saw increasing buying activity in sector-specific options and even of individual tech companies -- some large, some small.
Purchases of contracts based on the
exchange-traded fund rose, as did options on
(a maker of chips for wireless applications), to name just a few.
"If everyone was running to T-bills, you would not see that sort of activity," Briere says.
There appears to be general agreement that the turbulence will persist for at least the short term, though there's less agreement on how sharply the correction will cut.
"We are sticking to our forecast of an 8%-to-12% correction before the volatility is over. In the end, we'll escape a recession by the skin of our teeth," says Harry Clark, CEO of Clark Capital Management Group, which manages more than $1.2 billion in assets.
Jeff Kleintop, chief investment Strategist for PNC Advisors, says the inflow of capital to mutual funds was very strong in December and January, but in the three weeks prior to the current correction, "the spigot tightened dramatically," indicating real concerns.
However, he still sees pent-up demand and notes that in the last three years there have been six dips that knocked 5% to 7.5% off the value of the
. Yet the market recovered nicely. This dip, he says, is likely to be in the same range.
"We're looking for continued turbulence short-term but do not think the market will go off the cliff. We are not forecasting a recession, just a slowdown in growth," said Bill Schultz of McQueen, Ball & Associates, which has $800 million in assets.
Dan Niles, CEO of Neuberger Berman Technology Management, figures it will take the market several weeks to sort itself out. "Whether you're a retail consumer or an enterprise CEO, this last week probably scared the heck out of you," he says. And nervous executives with budgets spread over a 12-month period could well decide to push back tech spending (already back-end-loaded) to even later in the year than normal.
Some analysts worry that there's not enough excitement in technology to inspire consumers, who have been carrying the tech market on their, well, wallets. "It's hard to find the real driver for a sustained move. PCs are mature,
Vista is OK but unexciting, and there's nothing new in applications software," says Barry Bosak, a longtime tech analyst on the sell side and now a private investor.
More positively, Niles says the pullback in China could well strengthen domestic markets. "All of a sudden the U.S. is not looking so bad when China down 9% in a day."
Was it a good week? Obviously not. But Niles says it was a good reminder that "you can't forget the risk in the risk/reward equation."
Ron Kiddoo, chief investment officer at Cozad Asset Management, put it this way:
"For the last six months, all people have talked about is the need for a market correction. Now that we have one, people are panicking. What has really changed? The economy is still humming along. Aside from an off-the-cuff comment from Greenspan and some activity from China, nothing has changed," he said.
Kiddoo has a point, but if you believe the fundamentals of the economy, such as the housing market, are moving south, realizing that "nothing has changed" may not be so comforting after all.