The InformationWeek 100 Index was down more than 55% for the first nine months this year, indicative of how bad the IT landscape has been for large and small companies. For the third quarter alone, the InformationWeek 100 Index was down more than 27%. A number like that would be really bad for an entire year, but most of the damage was done just in September.

Of course, misery loves company. The negative performance wasn't limited to technology companies that focus on business IT. The broader-based Goldman Sachs Technology Index is down 51.3% for the year, led by stocks in the networking (-68.6%), semiconductor (-55.4%), and hardware (-52.2%) sectors. The best performing subsector within that index was Internet, with a decline of-42.1% so far this year.

Meanwhile, the Nasdaq 100, which includes some healthcare companies, was down a milder 39.9% year-to-date. This makes the-29.0% return of the Standard & Poors 500 look downright bullish.

The worst culprits are probably some of the best-known and widely followed companies. Ericsson was down 93.1%, and Nortel Networks was down 92.8%. Telecom companies were slammed hard this year, but so were some of the strongest semiconductor and Internet infrastructure companies, including PMC Sierra (-81.7%) and Akamai Technologies (-86.0%). But when leading companies such as Computer Associates (-72.2%), EDS (-79.6%), IBM (-51.7%), Intel (-55.8%), and Sun Microsystems (-78.9%) can't hold up, it's hard to predict when this downturn will end.

A couple of companies bucked the trend. Amazon.com got off the canvas in 2002 and rose 47.2% year-to-date; Symantec was up a thrilling 1.4%--hey, at least it's positive!

The question I get most often today is, when will the bleeding stop? I can't tell you exactly, because my crystal ball is as cloudy as the rest of them. However, let me give you a time frame as to when stock prices might start trending back upward.

The rest of 2002 will remain a struggle, because profits drive share pricing. The near-term outlook is weak at best, and IT budgets will stay locked up tight. Sales have to pick up before companies will feel comfortable increasing IT spending, even if the return on investment is justified.

In an economic downturn, expenses are the only items that management can really control. That means any pickup will likely lag the economic turn. So even as the economy recovers in the first half of 2003 (the most probable scenario), any pickup in IT spending will probably be the end of the first half. By the third quarter of 2003, however, year-over-year quarterly earnings are going to look positive, if not robust, as the comparison will be against very weak numbers from the second half of 2002. This should give buyers some confidence that the business outlook is improving. As confidence comes back, IT budgets should start loosening up a little. And we might actually see a mild rally by the fourth quarter of 2003 as prospects for 2004 pick up. Technology stocks, now that we've confirmed that they're cyclical and sensitive to the economy, will be early beneficiaries of an economic upturn.

Be patient. And when you decide to buy, look at valuations and quality.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected].

To discuss this column with other readers, please visit William Schaff's forum on the Listening Post.

To find out more about William Schaff, please visit his page on the Listening Post.