Last week, the Dow, still dizzy from an unexpected sell-off the previous week, fell near 9100, its lowest point in two years. By week's end, the blue chip index had stabilized, thanks in large part to a rally that started in, of all places, the semiconductor sector. Despite a sense that many tech stocks are still overvalued, fund managers are beginning to place their bets on a tech recovery, even though nearly everyone has written one off for the year.
Computer chips are usually the first to benefit from a rebound.
As a result, companies like chip-equipment maker Applied Materials hinting at continuing weakness in coming quarters are seeing their stocks surge. Its fate hangs on how hard the economy is shaken by the collapse of the Nasdaq bubble. The Dow's blue chip stocks are facing their darkest hour in years just as investors are beginning to muster some confidence in tech stocks. But if a recession brings down profits at nontech companies, those companies could cut back their tech spending further. And that would pour cold water on any tech recovery.