he technology sector took a bashing last week ? as second-quarter earnings season started to get into full swing.

A couple of negative profit warnings, and downbeat guidance by corporate management, was enough to sink many tech stocks and take the whole sector lower.

As noted previously, valuations are high and investors aren?t willing to forgive when earnings outcomes don?t meet expectations.

At the same time, contrarian traders are getting ready to bet on a positive bounce if newsflow improves.

There?s going to be a fair bit of capital spending by businesses on hardware and software, this year.

So it?s not all doom and gloom. However, 2005 isn?t likely to be half as rosy, in terms of corporate outlays on tech goodies, and farsighted investors may have zeroed in on such an outcome. Short term, though, there is the possibility of a tech rebound. This could offer market timers a tactical chance for quick profits. For others, it may be an opportunity to lighten up on their holdings, in order to maintain a strategic underweight position in the sector.

The uncertainty in tech-land has recently weighed down on the rest of the US stock market, but it?s still early days in the reporting calendar.

However, good earnings growth in the second quarter is already priced in, and the main question is how much deceleration is likely to occur in the latter half of the year.

So, plenty of attention is focussed on forward-looking management guidance.

Going forward, the US household sector will have to face a number of challenges.

Interest rates are picking up, although they have moved only modestly higher thus far.

But households may be more sensitive to rate increases in this cycle than in the past.

Previous Fed easing, by pushing interest rates to super-low levels, has made junkies out of households ? with the connivance of Asian central banks. And the debt addicts will suffer some withdrawal symptoms even if rates aren?t jacked up too rapidly. Household finances are somewhat rocky and need repairing.

Meanwhile, wage growth is having a tough time keeping up with inflation.

The core consumer price index does not capture how hard the average Joe is being hit in the wallet.

High gas/petrol prices are causing him to make fewer trips to Wal-Mart, and prices on a range of goods and services are creeping up at a faster pace.

Looking at the household sector?s financial wealth, stock-market performance has been unimpressive this year, after the big rebound in 2003.

At the same time, interest rate products aren?t, as yet, providing enough counterbalancing compensation.

As for the very risk-averse folk who put their money into low-risk short-term interest-bearing instruments, they are still waiting for a positive real return. You may remember that Greenspan brazenly cheated them out of a decent return, and instead rewarded risk-takers with a flood of liquidity.

The speculators were more than willing to take advantage of the juicy opportunities offered. But it was plenty good for homeowners too, who enjoyed low borrowing costs and bubbly house price appreciation. Now, the refinancing boom has wound up and many households have ended up with a lower equity stake in their home. This increases their vulnerability to untoward events via possible re-pricing in the housing sector, interest rate increases and slower real income growth.

Uncle Sam?s largesse on the fiscal front, which has boosted disposable income up to now, will no longer be available.

As for the savings rate, it is too low to allow households to dip into savings to finance consumption.

So, interest-rate hikes better be modest, house prices steady, employment creation strong and real wage growth higher, if the consumer is to make a big contribution to economic expansion in the second half of the year, and into 2005.

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