The real keys to their performance in the immediate future are economic growth and the direction of interest rates. The incredible growth of the Internet now drives much of the tech stock universe. Pure Internet companies are not only up an average of tenfold in only two years, but also are major buyers of all sorts of hardware and software. And that capital investment will keep flowing only as long as the economy is growing. For that reason, even a mild recession could really clock today's pricey tech sector.
Interest rates are even more important.
The share prices of companies with high growth rates are particularly sensitive to changes in the cost of money. Investors' willingness to tie money up in the hottest tech stocks depends enormously on the returns available elsewhere. Time Inc. All rights reserved. Reproduction in whole or in part without permission is prohibited. Our Privacy Policy .