NEW YORK - Technology began 2002 as the darling of the stock market, even heralded as the "first baby of the New Year" by Lipper Inc., the mutual fund research firm.
The early sprint raised investors' hopes that the sector would lead the market higher, but analysts caution that the outlook for tech - and tech funds - is still quite uncertain.
"I don't think anyone has an expectation that we are going to see 1999 again. We are not going to have sweeping triple-digit growth," said Jeff Tjornehoj, a research analyst for Lipper. "While we may see techs go up 5 percent in a week, I don't think that is sustainable over the year."
Tech funds rose 5.4 percent during the first week of 2002 after J.P. Morgan raised its rating on Intel Corp., citing improving business conditions. The chip maker's upgrade helped the tech-focused Nasdaq composite index advance 3.6 percent last week.
But that kind of gain is unlikely to become more commonplace until a substantial number of big-name tech companies can assure investors that business is rebounding and that an economic recovery is under way.
So far, the outlook among tech firms is mixed. Microsoft Corp. chairman Bill Gates said at the International Consumer Electronics show in Las Vegas that the company sold 1.5 million Xbox video-game consoles during the holiday season. Microsoft expects to sell 6 million by the end of 2002.
Compaq Computer issued a better-than-expected forecast Monday, saying its fourth quarter would be profitable. Analysts had anticipated a loss for the computer maker.
But on Tuesday, Gateway warned of a fourth-quarter revenue shortfall, and Ciena said its sales, along with those of other telecom equipment makers, won't rebound in the first quarter.
Market and financial experts advise investors to limit their tech buying until companies offer proof - in the form of earnings growth - that business really is better.
"Anybody who thinks this is going to be a straight shot up or anything like 1999 should just temper that a bit," said Gary Kaltbaum, market technician for Investors' Edge Partners in Orlando, Fla.
Bellwether Intel offers some perspective on the work the tech sector has ahead on Wall Street. The chip maker is near its 52-week high of $38.59 reached Jan. 31, 2001, but is well below where it stood for most of 2000, when it traded as high as $146.
Financial planners urge clients to remember tech's harsh fall during 2000-01 and to limit exposure to any one sector, including tech.
They reason that it's rare for the same sector to lead the market for two years in a row and then plunge to the bottom the next two years. But tech was an exception, capturing the market's top spot in 1998 and 1999 and then bottoming out in 2000 and 2001.
During the big 1998-99 rally, "we just temporarily went insane," said Patricia Jennerjohn, a financial planner in Oakland, Calif. "The higher the high-flying market goes, the harsher the inevitable downturn is."
Ms. Jennerjohn recommends that investors make investment decisions based on their goals and time frames, that they aim for diverse portfolios to minimize the downside risk if a particular sector has a bad year and that they don't pursue high-flying sectors.
"They tell you in the fine print that historical returns don't predict the future," she said.