We look for the rally to continue a few more months then fail, unless fundamentals improve significantly. The evidence supports continued share gains, but each situation needs to be analyzed independently. The September 1998 cut set off a doubling of tech prices in a year. The fundamentals are more negative today, so gains from here may be more limited. In a soft landing, it pays to buy on the first cut.
Stocks anticipate the bottom in the tech profit cycle.
Right now it appears that trough earnings are a couple quarters away. The tech rally has been led by stocks with the highest expected growth rates as well as names that had corrected the most. By sector, semiconductor, storage and communications equipment have performed best. The January effect has boosted small-cap and high beta stocks. Fundamentals have played a secondary role.