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Investors Consider How High Tech Stocks Can Fall After Unstable Weeks By Reuters

© Reuters. File Photo: The Wall Street sign is drawn on the New York Stock Exchange (NYSE) in Manhattan, New York City.

Luis Klauskov

New York (Reuters)-As US tech stocks stumble, investors argue whether the decline is an opportunity to scoop up bargains or a sign of further pain for stocks that have been raising the market for years. ing.

The index, which is rich in technology and growth names, has plummeted 8.3% since its February 12 earnings record, more than three times the decline. The decline in popular growth stocks is even steeper, with Tesla (NASDAQ :)’s share down 27% and Peloton (NASDAQ :)’ s share down 32%.

Taking advantage of name pullbacks like Apple (NASDAQ :) and Amazon (NASDAQ :) has been a winning strategy for the last decade, as big technology and growing stocks have driven market profits. Nasdaq reversed the plunge during the Friday session, eventually reaching 1.6%, as a sign that some bargain hunters may have already swooped in after the bumpy week.

However, some market participants are currently expecting a strong U.S. economic recovery to facilitate a shift from a “household ban” to a name prepared to benefit from a national resumption. We are concerned that the dip may last longer than the previous dip. The surge in bond yields has accelerated that rotation, with Friday’s benchmark reaching 1.625%, the highest level in over a year.

Ed Clissold, Chief US Strategist at Ned Davis Research, said: The profits of large tech and growth stocks will “not look so good”.

Data on Friday showed that US employment increased more than expected in February, providing further evidence of an economic recovery.

Investors were on the Federal Reserve Board of Governors March 16-17, after comments from Federal Reserve Chairman Jerome Powell showed little indication that the central bank was concerned about the recent rise in yields. I am waiting for the meeting of the meeting.

A rise in financial yields that is inversely proportional to bond prices means that bonds offer greater competition for equities and other relatively risky investments. Higher yields can undermine the value of long-term cash flow, which can weigh even more on tech and growth stocks with high valuations.

The S & P 500 tech sector has been down 7% since yields began to skyrocket in mid-February. Meanwhile, the Russell 1000 growth index fell 7.7%, compared to a 1.8% rise in the corresponding value index, which is rich in banks and other equities. Profit is expected from the economic recovery.

Wealth management firm Chase Investment Counsel has raised concerns about their valuations and evidence that the market is spinning elsewhere in recent weeks, including the sale of shares in Apple and Qualcomm (NASDAQ :). Chase president Peter Tsuz said he had reduced his technology holdings.

“Obviously, stock prices aren’t working as well as many other groups,” Tsuz said. The economic recovery could also significantly boost profits in the hit sector and shine the expected results of some tech companies.

According to Refinitiv IBES, profits in the financial, materials and industrial sectors in 2021 are estimated to increase by 23%, 34% and 72%, respectively, compared to a 15% increase for tech companies.

At the same time, valuations in this sector have historically remained high. According to Refinitiv Datastream, valuations in the tech sector have receded, at 26.6 times futures revenue, but well above historical averages of nearly 21.

Still, some investors believe that pullbacks could be a buying opportunity, pointing out the solid profitability of tech companies that could sustain after the earnings of a wide range of economies recover. I am. Despite historically rising, valuations in this sector are also well below the dot-com bubble levels 20 years ago, with Nasdaq falling more than 50% in less than a year.

Daniel Morgan, Senior Portfolio Manager at Synovus (NYSE :) Trust, said: “I’m still optimistic and I think the fundamentals are solid. I don’t see the big setbacks of the summer of 2000.”

Investors Consider How High Tech Stocks Can Fall After Unstable Weeks By Reuters Investors Consider How High Tech Stocks Can Fall After Unstable Weeks By Reuters

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