US Tech stocks have been pretty volatile over the last week or so. That’s following a stellar 6 months that has seen US equities sitting at unprecedented levels.
Large tech stocks like Amazon, Apple, Google, Intel, Facebook, Microsoft, Netflix and Tesla, that serve as household names around the world, have benefited from investor confidence on the back of strong US growth and Trump’s promises of tax reform.
As a result, we’ve seen the NASDAQ, which has a reputation for being heavily laced with technology companies and features all of the stocks mentioned above within its index, grow by more than 15% in 2017.
So, why the sudden volatility?
It appears that the investor confidence that has been underpinning this growth has started to wane. Last week, we saw a significant sell-off that many pundits were predicting would be the start of a significant market correction.
Then, early this week, we saw a big in-flow as investors sought to buy stock at attractive levels which moved many tech stocks back up to their record breaking levels.
That trend has been reversed again as investors continue to sell at these unprecedented levels.
Data from independent ETF selection platform TrackInsight shows investors continuing to worry about US tech stocks, with ETFs linked to this segment experiencing outflows of just over a billion euros yesterday, bringing total AUM down to EUR 74bn. This comes in spite of positive performance yesterday of 2.01%, suggesting investors expect this uptick to be short-lived.
Yesterday’s data follows even larger outflows last week, where the same segment saw redemptions of nearly EUR 1.8bn on Monday 12th.
So what next for Tech stocks?
At the time of writing, the Nasdaq has opened down 34 points as investors continue the sell-off trend.
Will that continue into the foreseeable future? This is where the experts disagree.
We think there’s plenty more growth to come. We feel that it is important that smart investors maintain a long term position on their tech stock holdings.
With huge research and development reserves and global sales revenue, many of these businesses are focusing a great deal of their efforts on innovation and growth.
You only have to look at Amazon’s takeover of Whole Foods for a reported USD 13.7 billion to understand the kind of purchasing power their business model affords them – and how quickly they can move into new territory. It’s fair to suggest that the retail sector will be keeping a very close eye on how this next phase in Amazon’s development continues.
And that’s just one example. There are plenty more.
Google and Facebook are snapping up the brightest and most innovative technology companies and integrating them into their plethora of products and services while Tesla is investing in products that are designed to challenge our reliance on the world’s natural energy sources with sustainable renewable energy solutions.
Disruption appears to be a major driver for these businesses.
Are tech stocks overpriced then?
Well, yes, Quite probably at the time of writing. If you look at their share price to earnings ratios in isolation, they start to look a little pricey.
However, taking into consideration their acquisitive strength and motivation to develop game-changing products and services, I’m not so sure they are.
The important thing for any investor is that you make up your own mind. Don’t make the mistake of following the crowd – markets fall, but inevitably, they rise again. Stick to your strategy, whatever that may be.