The only good thing publicly traded channel companies and technology vendors can say about the just-completed third quarter is that it is over.

Making money was tough all over, of course, but particularly in the technology sector.

The major U.S. equity indices were all down. The Dow Jones Industrial Average and the S&P 500 dipped 2.6 percent for the quarter, the small-capitalization Russell 2000 index dipped 5.6 percent, and a the technology-heavy Nasdaq took a shellacking—down 8.1 percent.

The question in investors' minds is if this is just seasonal softness or if we are experiencing a cyclical slow-down that indicates an economic recession sometime late this year or in the first half of 2006.

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The technology bulls profess to be more upbeat about the sector than they have been since the pre-bubble-burst in the late 1990s.

Their thesis is that the world economy remains strong and will continue to expand at a minimum of 3 percent per year.

That will drive IT spending of up between 6 percent and 7 percent per year, as far as we can forecast.

Further, the bulls see the attractiveness of "low valuations" in the current tech wreck being magnified by an upcoming strong product cycle in 2006.

In terms of the economic cycle, the optimists believe that even with the slowing earnings growth we are seeing in 2005 versus 2004, along with slowing productivity growth and moderate employment increases, there is sufficient motivation and resources to power technology capital spending.

This argument is buttressed by the fact that corporate America is flush with cash.

Finally, technology bulls pin their hopes most compellingly on a strong 2006 product cycle centered around the delivery of Microsoft's Longhorn operating system next year, the rapid deployment of 3G (third generation wireless infrastructure, products and services), VOIP (voice over IP) deployment and strong consumer launches of PlayStation 3 and X-Box 2, along with the expanding migration of all consumer analog products to their digital incarnations.

More bearish investors, however, aren't convinced. Their caution has ruled the market so far this year, and through the first three quarters of last year.

What they see is the stock market performing its typical function as a leading indicator of future economic conditions.

Right now the stock market is forecasting a slowing economy and declining profit growth under the weight of increasing interest rates and spiraling commodity prices, particularly oil and gas.

As the Federal Reserve gets more aggressive fighting the threat of inflation, the Federal Funds interest rate is likely to increase from today's 2.75 percent to 4 percent, or higher, in the not-too-distant future.

Click here to read about distributors who fear decreases in PC demand may lead to price wars.

Nevertheless, the consensus view on Wall Street is that, despite some selected weak company first quarter pre-announcements, what we are seeing is a seasonal "soft patch" with no conclusive evidence of a broad-based IT slow-down.

Even selected Value-Added Dealer/Value-Added Reseller surveys show a high level of optimism that the softness experienced thus far is temporary and pipelines continue to be strong, even as deal closure rates decline and visibility remains murky.

Warnings from Tech Data, Synnex and PC Connections that they expect demand to continue to be soft and that price competition will become more serious in the North American market have been dismissed as either company-specific issues or transient occurrences.

Consequently, if it turns out that the recent slower growth environment is more than ephemeral, equity prices will decline even more viciously.

Benny Lorenzo has more than 30 years of business and technology experience and is currently General Partner at Aspira Capital Management of Fort Lee, N.J. He has held various positions with AT&T and IBM. He was also portfolio manager at P.A.W. Partners and served as senior vice president of Equity Research at Dillon, Read & Co. Inc., general partner at Volpe, Welty & Co., and vice president at LF Rothschild & Co. Inc. Benny Lorenzo can be reached at biencito@aol.com.