The five biggest tech companies on Wall Street briefly signaled a sigh of relief at the correction.
from the Nasdaq
The index partially recovered on Tuesday after falling before Fifth time in six trading sessions It had fallen and closed at its lowest level since mid-June.
The decline of the most famous American technology scale is related to Long-term interest rates are rising in the United States above 1.50 percent. Growth stocks are particularly sensitive to interest rates, as their valuation is largely dependent on their future earnings. Without interest, 100 euros will be worth in five years as it is now. That is changing rapidly as interest rates rise. In the growth stock valuation model, an interest rate rise of barely half a percentage point quickly means a valuation change of tens of percentages.
- Shortly after the outbreak of Corona, investors in big tech stocks fled. Due to their strong balance sheet and the nature of their business, they have been considered a safe haven in times of Corona.
- Since the peak on September 7, the combined market capitalization of Apple, Microsoft, Amazon, Alphabet and Facebook has fallen 8 percent.
- Investors fear overvaluation due to high long-term interest rates.
At the peak of the Nasdaq Composite Index on September 7, the Big Five were – Apple
Amazon and Facebook – $9.633 billion (see chart). On Tuesday around 6 p.m. it was still 8.894 billion, or 8 percent less. On Monday, big tech companies were on the alert for a correction: a decline of at least 10 percent. The broader Nasdaq Composite Index is down 6 percent from its peak on Tuesday.
compared to 2000
The big tech sell-off is spontaneously reminiscent of the deflation of the tech bubble in 2000. “Totally unjustified,” says Mislav Matejka, a strategist at JPMorgan. MSCI World Tech was then priced on an expected price-to-earnings ratio at a premium of 120 percent over the stock market. Today it is only 30 percent. However, there has been a clear upgrade in recent years. Since the end of 2019, that is, before the Corona outbreak, the combined market value of the shares of the Big Five has increased by 77 percent. The five benefited from staying at home and working from home.
The momentum in technology has been gone for a while.
Because of this upgrade, JPMorgan hasn’t been a buyer of technology stocks for a while. The advice is to “keep it up”. Mateca: “Technology has often been on our buy list in recent years, but in November 2020 we decided to take a profit.” Since then, the Nasdaq Composite has risen 20 percent.
Mateika: We think the US 10-year bond yield will go up until the end of this year. This puts pressure on the sector. In addition, prices were somewhat outpacing the evolution of segment earnings. The momentum in technology has been gone for quite some time.”
In the technology sector, JPMorgan prefers semiconductors. This sub-sector is about to be bought on the stock exchange. “The semiconductor sector reacts less strongly to interest rate fluctuations than the technology sector in general has shown in the past.” However, the chip sector is not immune to the current wave of sales. In Amsterdam, ASML chip machine supplier
16 percent below its peak. As a result, ASML is almost in a bear market (a primary downtrend), which starts from a 20 percent decline.
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