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Technology companies will likely fare better in the current economic downturn than they did after the tech-led bust at the end of 2000, according to a Thomson Reuters Proprietary Research report released this week.

Research director Michael Thompson said the outlook for first-quarter technology earnings has turned lower, to 9% from 14%, from a deteriorating U.S. economic situation. But, he said, the size of the current decline is “way below” the drop-off experienced during the 2000 bubble and the sector “is unlikely to see a sharp downward swing rivaling anything like what was seen in 2000.”

“While markets are pre-occupied with all the negative news being generated by the financials sector, it may not be a bad idea to divert some attention and do a little valuation-based bottom fishing in the technology sector before housing-based financials headwinds transition into capital investment tailwinds for the technology sector,” Thompson wrote.

The quarterly growth rate in tech spending currently is more benign and realistic, the increase in prices of individual sector and industry equities is relatively conservative, and valuations don’t even come close to the “dizzy heights” of the 2000 bubble era, according to the report.

Between 1998 and 2000 software spending grew at double-digit rates that were also between two-and-half and three-and-a-half times the rate of U.S. gross domestic product growth, Thompson said. Spending then dropped off sharply in the bust and slid lower for eight consecutive quarters, through the first quarter of 2003. In the current cycle, growth has been more muted, averaging only 5.5% and growing between 0.5 to 2 times as fast as GDP.

There’s also a marked contrast in the price of technology sector equities this time around. The S&P Technology Index peaked at 441.4 in October last year, but that’s a far cry from the high of 899.3 reached in March 2000, when other industry indexes also soared to record highs, Thompson said. Between October and April 21, four of the S&P technology indexes have fallen between 14.2% and 15.7%, a slump greater than the 10.4% decline in the S&P 500 over the same period.

Recent sector gains also pale in comparison to the spiraling stock prices of the 2000 bubble, when the top gainers saw their March 2000 share prices increase seven, eight or even nine times over prior-year period prices. By contrast, the tech stocks with the most share price growth of late barely doubled in price between September last year and September 2006, the report noted.

“That the technology sector posted a rather modest recovery during the last few years compared to financials and materials may offer a partial explanation for recent moderate declines,” Thompson wrote.

Valuations for many stocks are also now well below the price-to-earnings multiple high of 48.3x seen during the bubble, limiting risks for the sector versus that period, Thompson said. “Valuations at the recent market peak are at more than a 50% discount to those seen in 2000. Though sector valuations (forward P/E) are higher than the composite index by about 15%-20% on average, they are nonetheless at the most attractive levels seen since 1996. Technology also appears attractively priced on a historic dividend yield and long-term growth metric basis.”

Wall Street is on track to open slightly higher Thursday as the market continues to weigh the possibility of further interest-rate cuts, in a busy session for economic data and earnings reports.

According to spread bettors IG Index, the Dow Jones industrial average is expected to open up 17 points higher at 12,837. S&P 500 futures were up 1.10 at 1,387, while Nasdaq 100 futures rose 3.75 to 1,927.
Wall Street gave up sharp gains and closed lower Wednesday after the Federal Reserve cut interest rates by a quarter point but left investors guessing about the central bank’s next move.

The Dow Jones industrial average fell 11.81, or 0.09%, to close at 12,820.13, the Nasdaq composite index lost 13.30, or 0.55%, to 2,412.80, and the Standard & Poor’s 500 index slipped 5.35, or 0.38%, to 1,385.59. The yield on the benchmark 10-year Treasury note fell to 3.73% from 3.82% late Tuesday, and crude oil for June delivery fell $2.17 to settle at $113.46 a barrel on the New York Mercantile Exchange.

ECONOMIC DATA:

• Personal income for March, 8:30 a.m. ET, 0.3% estimate
• Consumption for March, 8:30 a.m. ET, 0.3% estimate
• Initial jobless claims, 8:30 a.m. ET, 360,000 estimate
• Institute for Supply Management index for April, 10 a.m. ET, 48.0 estimate
• Construction spending for March, 10 a.m. ET, -0.9% estimate
• Major auto makers release car sales data throughout the day

EARNINGS HIGHLIGHTS:

Company                 Symbol    Period     Estimate

Automatic Data           ADP        3Q      $   .75
Burger King              BKC        3Q          .27
Cardinal Health          CAH        3Q         1.01
Comcast Corp.            CMCSA      1Q          .19
CVS Caremark             CVS        1Q          .55
Eastman Kodak            EK         1Q         (.03)
ExxonMobil               XOM        1Q         2.14
Monster Worldwide        MNST       1Q          .22
Thomson Reuters          TRI        1Q          .36

Figures in parentheses denote losses.

AFTER-HOURS ACTION:

After Wednesday’s close of trading, Starbucks Corp. said its fiscal second-quarter profit fell 28%, as revenue grew 12%. Prudential Financial Inc. said profit from financial services dropped nearly 93% in the first quarter; Symantec reported fiscal fourth-quarter adjusted earnings that topped Wall Street’s consensus view; Murphy Oil Corp. said its first-quarter profit soared, fueled by higher crude oil prices; and Akamai Technologies Inc. said its first-quarter profit nearly doubled.