Sunday evening, June 3, 2001

COMMENT: The Tech Wreck isn't over yet. This is the finding of the May CIO
Magazine Tech Poll. Last summer, I partnered with the good folks at the
magazine to conduct a web-based poll of chief information officers to assess
the outlook for information technology (IT) spending on a monthly basis. The
resulting "CIO Magazine Tech Poll in partnership with yardeni.com" is
already proving to be an accurate measure of technology spending and
business trends. In May, our panel predicted IT budgets will grow by just 4%
over the next 12 months, down from a 7% prediction in April and down sharply
from 19% last November. The panel reported IT budgets grew an average 5%
over the previous 12 months, down from the 10% April estimate, and again
down sharply from 22% last September.

Now we know: High-Tech spending is not recession proof. Like the low-tech
variety of capital spending, it depends on profits and financing conditions.
It will rebound when these two conditions improve. Since February, we've
asked our CIO panelists what is the number one negative for IT spending. In
May, "weak profits" was cited by 37% of the panelists as the primary
negative factor facing IT spending plans in 2001. That is up from 30.8% in
February. In May, another 26% saw "tight financial conditions" as the main
problem, down from 35% in February. The Fed's aggressive easing has had an
impact on our panelists' perceptions of credit conditions since fewer are
reporting that this is a number one problem for IT spending. At the same
time, more of our respondents say that weak profits are depressing
technology budgets.

SUBSCRIBERS: For more on the poll and tech capital spending see my latest
GLOBAL PORTFOLIO STRATEGY. In last week's GPS, I examined the valuation
question. The mean (and not market-cap-weighted) P/E for the S&P 500 is down
from a record high of 31 last year in March to 26 now. Stocks are cheaper,
but certainly not cheap. The median P/E for the S&P 500 actually rose over
this period from 16 to 19. S&P 500 technology stocks are also cheaper, but
not cheap. The mean tech P/E is now  down from 89, while the median is down
to 35 from 58.

Despite the Tech Wreck, technology stocks remain the most highly priced in
the market with a market-cap weighted P/E of 33. That is down from a high of
47 early last year. Transportation valuations remain in the bargain
basement. Makes sense, right? Technology earnings grow faster than
Transportation earnings so they deserve a higher P/E. Yet, when we actually
compare the performance of the two since 1990, the fact is that
Transportation has outperformed Technology!

PUBLIC: Laszlo Birinyi, my friend and one of the best technical market
analysts in the world, will be my special guest on Monday's Weekly Audio
Forum. The live event is open only to accounts with passcodes, but the
rebroadcast will be public. The June EARNINGS MONTH, with "Squiggles
 Inside," will be posted on Monday afternoon.

Dr. Ed

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