Even seasoned stock market watchers have been astounded by the volatility in stock markets over the past few weeks, and it will take nerves of steel for any investor to plough large amounts of money into technology shares in particular.

But now, some analysts believe that there is growing evidence that after one of the longest bull markets in stock market history, the markets may be heading for a bear phase. The market optimists - the bulls - will describe such a bear phase as a correction that is needed after a period of extraordinary gains.

The bears, however, believe that such an interpretation grossly understates the problem of an American stock market that has risen to staggering levels, driven onwards and upwards by endless buying of shares of technology companies, many of whom - including a goodly portion of Irish companies who have their shares listed on the Nasdaq market - are many years away from generating profits.

To put that in context, a traditional measurement of a company's worth is multiples of earnings (or after-tax profits). Many of the so-called dot.com shares are now apparently valued on the basis of multiples of sales, with earnings a long way away from even entering the equation. The fact that the Nasdaq market has risen 85 per cent in the past two years compared to just 15 per cent for the Dow in the period is an indication of how funds have flowed into the technology sector and out of traditional financial and industrial stocks - the dull, boring companies who actually generate profits.

But last night's developments on Wall Street go far beyond a reallocation of investment funds from "old" economy companies into go-go technology shares. There is a growing fear that yesterday's US inflation figures show that the economy - after steady and apparently controlled growth may finally be heading into a period of higher inflation.

There is no doubt that next week will see turmoil on stock markets as European investors respond to last night's developments on Wall Street. And that turmoil - fuelled by the prospect of an interest rate rise by the Federal Reserve to add to the expected rate rises by the European Central Bank and the Bank of England - will probably continue until Fed chairman Mr Alan Greenspan and his Open Markets Committee decides when and by how much US interest rates will rise.

The Fed has an unenviable decision to make. If it increases rates by too much, it will send stock prices spiralling downwards and quite possibly generate an economic slowdown that could turn into a recession. If the Fed is too cautious, its actions may be too little to choke off the inflationary pressures in the American economy.