Stalking The Bull

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More worrisome is a broad slowdown in the crucial area of tech spending. It's no secret that tech is the ox that for years has pulled the market higher. Other industries, including retail and autos, are already in profit recessions. Without a vibrant tech sector, there is little to drive overall corporate profits higher.

Barton Biggs, chief global strategist at Morgan Stanley Dean Witter, notes that spending on telecom equipment will be down in 2001, after rising steadily for years. A number of big carriers have already disappointed Wall Street with weak sales of their goods and services. Spending on PCs and by cable systems is falling too, Biggs says. Meanwhile, recent dotcom failures and near failures, from Pets.com to Drkoop.com , highlight that industry's capital crunch, which will take a big bite out of revenues at suppliers such as Sun and Oracle; the latter's stock is down more than 40% in three months.

Cascading tech values are leaving a lot of investors feeling queasy. Michelle Jorgenson, who trains social workers in Chicago, halted plans to buy a cabin hideaway when the value of her mutual funds sank $9,000 in October. Pamela Green, a dotcom marketing executive in Atlanta, saw her down-payment kitty sink from $10,000 to $7,500, and instantly put the brakes on a condo deal. "I have a lot of expenses, and I'm not hearing anything from clients," she says. "I'm going to hold off on spending. My mother always taught me to have some money that I call my God-forbid money, and I've already had to dip into it."

In nearby Smyrna, Ga., Greg Jackson, a gas-station owner, puts it succinctly. "I've lost my tail," he groans. "I gambled and lost with tech stocks." After holding only blue chips for a decade, he jumped into Internet stocks a year ago, near the peak of dotcom mania. Now he's investing in land and his business--and spending less.

Such anecdotes help fill out the market backdrop. Since March, $2 trillion of market value has been wiped out, and if you believed in a wealth effect on the way up, then you have to believe in it on the way down. People spend less when their savings evaporate. They spend less when it will cost 30% more to heat their home. No wonder retailers are anxious about Christmas. Beyond that, the possibility of a recession next year has crept into the stock market. That's going to make sustainable gains hard to come by. Like Harry Potter and his magic mirror, you can see what you want. Just remember that what you see may not be real.