For the six months ending June 30, 1999, the texas monthly Biz Index (TMBI) produced a total return of 11 percent, trailing the 12.4 percent return of the S&P 500 during the same period. How can that be when the Texas economy is so healthy — and when the telecommunications and energy sectors performed well? The reason is that the technology sector fared poorly in the first half of the year, largely because of a negative 43 percent return by Houston-based Compaq, which has seen its sales growth slow, is losing market share, and has recently shaken up its management team, resulting in a decline in investor confidence. Compaq, you’ll recall, is one of the largest Texas stocks; since the TMBI is market-capitalization weighted, a stumble by one of the big companies drags the whole thing down.

A deeper analysis of the importance of each of Texas’ market sectors confirms some incredible changes that seem to have taken place over the past twenty years. As many people know, we’ve shifted from a dependence on energy and the associated fluctuations in oil prices that caused such dramatic swings in the seventies and eighties to a better-diversified economy with a significant interest in the fast-growing tech and telecommunications industries. The success of companies such as Texas Instruments, Dell, SBC, and GTE—and, until recently, Compaq—has contributed the most to these changes.

The table below shows that the market capitalization of publicly traded energy companies has shrunk by more than half in the past two decades relative to the total Texas market. At the same time, the technology sector has grown by nearly seven times and telecommunications by nearly three times. Given the close relationship between these two sectors, what might be called the information industry now accounts for nearly 40 percent of the total Texas market. Because of this diversification, Texas is enjoying better boom times today than other states that used to be dependent on energy, including Alaska, Louisiana, and Oklahoma.

The lesson? Don’t bet the ranch on oil.

Percentage of Total Texas Market

Market Sector 1999 1979
Energy 25.2 60.5
Technology 23.9 3.7
Telecommunications 15.5 5.3
Consumer staples 7.2 2.7
Financial services 7.1 1.4
Utilities 5.7 9.9
Consumer cyclicals 4.8 6.2
Transportation 4.5 6.2
Capital goods 4.4 2.0
Basic materials 1.4 2.1