After hearing a CNBC reporter the other day describe the market as "sinking," my first-grade daughter Cathryn asked me if he meant the market was sinking like the Titanic. Some might disagree with my "No, it isn't"-and there may be a few similarities, especially for owners of some tech stocks-but there are also major differences.

Cathryn, who is learning to read the CNBC stock ticker in the mornings as part of her mathematics lessons, has learned to correlate Dad's moods with the swings of the market indices. She has also nearly memorized the lines from the movie Titanic and is well aware of the fate of Rose and Jack. So she understood what I was talking about when I told her there was no need to jump out of the ship.

While the Titanic was mortally wounded by a collision with an iceberg, this stock market has not been mortally wounded by a dose of reality. Taking on a little water, yes; mortally wounded, no.

Economic factors or global issues drove market upheavals of recent memory in 1987, 1990, and 1998. While there may be similarities to 1987, when stock prices became divorced from economic reality; to 1990, the Gulf War year; or to the global currency crisis of 1997-98, the current turbulence has more to do with the collapse of investor psychology. Fortunately, investor psychology can turn around faster than the Titanic could!

Historically, great bull markets have come to an end because of fundamental changes in the economy-driven by excessive inflation, by tax or trade policies, or by global conflict. None of these exist today. Strong global economies operating with excess capacity, global deregulation of trade, and pricing power limited by the Internet all are combining to keep inflation in check.

As counter-intuitive as it may seem, this market will turn around when the economy slows. Stock markets generally have not done as well in strong growth periods as they have in less robust times. Strong economies need capital to grow. This need for capital competes with the stock market, also driven by liquidity. When an economy is rapidly expanding, it takes away capital from the stock market. When it slows, capital flows back to the markets. Hence the stock market's role as the leading indicator of the economy's future direction.

Two important factors are at work here. First, global economies are beginning to grow, and this is taking capital away from the stock market. Second, our economy has grown at terrific levels for the past year. In the latter case, the Federal Reserve has begun to put the brakes on by raising interest rates. Already we are seeing the effects of this tightening with flat auto sales for the past four months and flat housing sales for the past six months. Why, locally, we even have houses staying on the market for a few days and selling for asking price or less!

Cathryn's heroes, Rose and Jack, could have used a little modern technology to rescue them from their plight. Fortunately, we have the tech that will rescue our stock markets. Technology powers our economy and dominates all market indices.

Tom Galvin, a tech analyst for Donaldson, Lufkin & Jenrette, recently wrote that "global recovery in profits will lead to a global rebound in cash flow and capital spending in which tech will take a bigger share of a growing pie." He notes that if a firm does not spend on technology and its competitors do, it will lose its customers and watch its cost structure implode. "A whole lot of spending on tech is yet to unfold."

Stay in the boat!

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