Tech stocks are supposed to go down less than the overall market and come back faster. That has been in the Broker 101 handbook for at least two decades. The reasoning is simple. Technology actually becomes more essential to corporations in a recession. It makes enterprises more efficient and productive. A mainframe can do the work of a dozen people. It has no health care or vacation requirements.
The theory is not entirely bogus, at least when viewed from 30,000 feet. The PC and server have made businesses around the world substantially more productive. Router companies such as Cisco (CSCO) have streamlined the flow of data and voice over the broadband internet. Wireless systems allow workers to be efficient in almost any part of the world. Products like the RIM (RIMM) Blackberry mimic most of the features of a PC in a package the size of a deck of cards.
Over the last several years, tech could make the claim that it had successfully redoubled its effort to give both businesses and consumers the ability to accomplish tasks that were previously complex and time consuming with relative ease. Google (GOOG) has made the collection of information quick and efficient. Software virtualization has allowed a large number of programs to run on a single server. Salesforce.com CRM) and Oracle (ORCL) have made it possible for employees to work in places remote from their offices with the systems that they need operating on servers and not on their PCs or handhelds. That keeps a company’s data more secure and it also keeps applications from taking up memory on portable devices.
If tech is the sector of the economy that gives customers the most bang for the least money even in an economic downturn, the trading of shares in large tech companies are not supporting this theory. The stocks in companies like Microsoft (MSFT) and Intel (INTC) have not done any better than the market over the last six months. Some analysts would argue that this makes sense. The two companies are “old line” firms that developed their basic products in the early 1980s. While the shares of Google are down during the same period, they are not down as much. Google (GOOG) has more recently developed technology, so the market should give it a premium.
The argument that tech stocks should do much better than the market during a recession is undermined by the fact that the current recession is not like any of those that came before it. Businesses and consumers are willing to abandon nearly all of their spending. Even if products or services make their lives more efficient and their time more effective if there is no more money to spend, it really doesn’t matter.
Analysts try to describe why this period is worse than other bad economic periods in the past. To a large extent it is that even the most useful creations of the human imagination can’t find a market when the whole world is
Douglas A. McIntyre