SAN FRANCISCO (CNN/Money) -
Almost unthinkable just six months ago, the tech-heavy Nasdaq is sinking dangerously close to the three-digit precipice. On Sept. 23 it hit 1,184 -- a level not seen since September 1996, just two months before Federal Reserve chairman Alan Greenspan made his infamous "irrational exuberance" speech. So let's make it official: The age of irrational exuberance is over. Clang!
Problem is, there are precious few indicators that offer much guidance to investors who are still looking for the floor. Here's what we're up against and what might lead us out of this mess.
For starters, this is not shaping up to be the winter of our discotheque, or a go-go run-up into the holiday season. Rather, the frost has hit early, thanks to announcements from companies such as fiber-optics maker JDS Uniphase (JDSU: down $0.12 to $2.01, Research, Estimates), which on Monday reported that its third-quarter sales would come up $20 million short of its forecasts.
On Tuesday, EDS's stock sank after it reported third-quarter profit questions and overall cash concerns. (Note to self: Watch out for companies with "DS" in their names; could stand for "downward spiral.") And at a conference in San Francisco this week, Cisco (CSCO: down $0.60 to $11.36, Research, Estimates) CEO John Chambers said his company was having a hard time figuring out when and how much its customers are going to spend. "If CEOs think things are going to pick up in the first quarter of next year, they'll spend in December," he said, according to Reuters. "If they feel like business is going to tighten in the first quarter of next year, they are probably going to be more conservative. And I think that is too early to call."
Hmm...Too early to call what customer spending will look like six months down the line? Might be time to slip the prefix "in" in front of Chambers's next "visibility forecast." Unfortunately, it's not just Chambers who's having a hard time predicting when businesses will spend again: The Conference Board announced on Monday that its index of leading economic indicators slipped 0.2 percent -- the third straight monthly decline.
But now for the good news. A recent Forrester Research report found that overall IT spending will increase 2.3 percent over last year's numbers during the second half of this year, and that 82 percent of companies "will at least hang onto" their IT budgets in the second half of 2002.
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Moreover, when businesses finally start spending, we'll see a correlating upturn in productivity, says Bob Turner, chief investment officer at Turner Investments. Studies show that inventory levels are at their lowest point since the 1970s, he says, which means "any uptick in demand will be met with increased production," and won't simply lead to the tapping of existing inventory. This would provide a much-needed revenue boost to struggling companies.
Consumers, through a heady mix of equating patriotism with spending and being bolstered by low interest and finance rates, have kept the economy afloat despite increased layoffs and continued uncertainty. But they can't be expected to go it alone for much longer. "Consumers have been the only driver," Turner says. "Now we need the companies to pick up."
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