NEW YORK -- Technology stocks may still have shaky legs, but this past week, they proved strong enough to support the broader market.
Wall Street analysts remain wary of the volatile sector, and many warn that technology issues won't return to their former peaks any time soon. But with a long string of punishing selloffs behind them, tech stocks -- at least the shares of the best-established, fastest-growing companies -- now appear poised for a genuine recovery, market watchers say.
''I think we've seen the lows in the Nasdaq and in many technology stocks,'' said Charles Pradilla, chief investment strategist at SG Cowen Securities in New York. ''If you're in the right tech stocks, there's tremendous potential for gains.''
Analysts say the dramatic washout that left the Nasdaq composite index more than 34 percent below its all-time high earlier this month helped purge the market of stocks that weren't worthy of their high prices. That should allow the companies with strong fundamental strength and real, tangible earnings to flourish.
''Technology fundamentals have remained excellent, but investor sentiment toward technology stocks has changed radically over the last few months,'' said Vernon Winters, chief investment officer at Mellon Private Asset Management. ''Even though the market leadership of the technology sector is sufficiently powerful that it may continue, speculative excesses will be corrected.''
Pradilla noted that while many struggling Internet retailers and other dot-com companies fell by 70 percent or 80 percent in the mid-April rout, many companies with solid, growing earnings were also harshly punished.
He equated the technology shakeout to the collapse of the biotechnology sector in the early 1990s.
''The big companies -- Amgen, Genentech, Biogen -- all suffered, and the junk companies were knocked down 80 to 90 percent,'' Pradilla said. ''Today, the leaders are still around and doing well again, but a number of companies didn't survive when the bubble burst.''
Many analysts expect cash-strapped Internet companies to meet the same fate. This past week, Drkoop.com warned Wall Street it has only enough cash to continue operating for about four months. The company, which traded at $36 shortly after its initial public offering last July, ended the week at $2.75.
Even with the weakest performers benched, the technology sector faces some formidable obstacles in the coming months. Chief among them: rising interest rates.
In the tech sector's heyday, investors abandoned conventional wisdom and decided that the rapid growth of many technology companies would enable them to outrun rising rates, which hurt stocks by making it more expensive to borrow money.
The sector's sobering decline may have stripped investors of some of that optimism, which many analysts believe was misguided.
''Technology is impervious to long-term, modest changes in interest rates,'' Pradilla said. ''But in the short term, these companies do borrow an awful lot of money, and they most certainly are affected by higher rates.''
Ultimately, analysts said, technology stocks will regain leadership of the market simply because they remain the most coveted securities in a world increasingly dominated by technology. Even as once-beloved names spiraled lower earlier this month, many investors never truly lost their appetite for the sector and its potential for eye-popping gains.
''Growth investors were looking for an excuse to jump back in again,'' said Brian G. Belski, chief investment strategist at George K. Baum & Co. in Kansas City, Mo. Still, he expects technology investors to remain chastened and cautious.
''There are investors out there that are coming out of a period where they lost money, and in some cases, a lot of money,'' he said.
This past week, the technology-dominated Nasdaq composite index rose 216.78 points. On Friday, the Nasdaq gained 86.63 to close at 3,860.66.
The Dow Jones industrial average fell 110.14 over the course of the week, losing 154.19 Friday and finishing at 10,733.91.
The Standard & Poor's 500 gained 17.89 during the week. On Friday, the S&P 500 slipped 12.49 to close at 1,452.43.
The Russell 2000 index, which has joined the Nasdaq in rebounding from harsh selloffs earlier this month, rose 24.41 for the week. A gain of 11.69 on Friday left the index of smaller companies at 506.25.
The Wilshire Associates Equity Index, which represents the combined market value of all NYSE, American and Nasdaq issues, ended the week at $13.54 trillion, up $292.26 billion from last week. A year ago, the index was at $12.46 trillion.
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