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Tech-focused investors have experienced a tumultuous few years. First, the Covid-19 pandemic forced the global economy to come to a standstill and crashed high-flying tech stocks such as Amazon (AMZN - Free Report) ,Alphabet (GOOGL - Free Report) , and Meta Platforms (META - Free Report) . Post-pandemic, investors such as Cathy Wood, who runs the Ark Innovation ETF (ARKK - Free Report) , benefitted from tech growth being “brought forward” as companies adapted to the remote-centric economy. For example, popular video-conferencing company Zoom (ZM - Free Report) saw shares catapult from $60 to $600.
Image Source: Zacks Investment Research
Fast forward to 2022, and tech stocks faced their next hurdle – pricey valuations coupled with the highest inflation rate in four decades. The toxic combination led to devasting returns of more than 30% in the Nasdaq 100 ETF (QQQ - Free Report) and drawdowns of more than 90% in several individual equities.
What’s Next for Tech Stocks?
To look to the future, looking back at the past can often be helpful. Despite the many obstacles in U.S. equity markets over the past decade, tech returns have been phenomenal. For example, even with the tech debacle of 2022, the Nasdaq 100 ETF gained 321% over the past ten years.
Image Source: Zacks Investment Research
Through scare after scare and multiple black swan events, tech stocks continue to climb the proverbial “wall of worry”. Now, the space is experiencing yet another potential hurdle to climb over – the regional banking debacle that was sparked by the Silicon Valley Bank’s collapse. Today, I will provide 5 reasons why tech investors should look past the banking uncertainty and warm up to tech stocks.
1. Price & Volume is “Truth”: Investors should defer to the price and volume action over frightening headlines when in doubt. Why? Price and volume represent actual bets made by investors, while headlines represent rhetoric. Thus far in March, QQQ is only down ~1%, while the Russell 2000 Index ETF (IWM - Free Report) is down nearly eight times as much. In other words, the market shows that the tech sector may not suffer the impact that the small cap space is currently experiencing. The QQQ is also finding support at its 200-week moving average – an area that marked major bottoms the past four visits.
Image Source: Zacks Investment Research
2. Fed Pivot Potential: A rising interest rate environment has been disastrous for tech stocks. The recent banking crisis may actually benefit tech stocks by providing liquidity through a relief in rate hikes. Fed fund futures now suggest that there is a slightly higher chance of no hike than a hike during the next Fed decision meeting.
3. Larger Tech to Suffer Less Impact: While, the collapse of Silicon Valley Bank spells trouble for start-ups, larger, cash rich companies such as Apple (AAPL - Free Report) should suffer less of an impact.
4. Money Flow Out of Small Caps: Since regional banks and small caps are experiencing a large outflow of funds, institutional investors may look to reallocate capital to the tech sector.
5. Valuations Shrunk: Falling stock prices has led to attractive valuations in big tech stocks such as Amazon. Amazon’s price-to-sales ratio is at its lowest level since 2010.
Image Source: Zacks Investment Research
Bottom Line
For the above reasons, tech stocks may be set for an unexpectedly strong 2023. The price action, shrinking valuations, and influx of liquidity point to large potential gains ahead. Investors should focus on large tech stocks such as Apple in the months ahead.
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5 Reasons to Be Long Tech (Unexpected)
Tech’s Bumpy Ride
Tech-focused investors have experienced a tumultuous few years. First, the Covid-19 pandemic forced the global economy to come to a standstill and crashed high-flying tech stocks such as Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , and Meta Platforms (META - Free Report) . Post-pandemic, investors such as Cathy Wood, who runs the Ark Innovation ETF (ARKK - Free Report) , benefitted from tech growth being “brought forward” as companies adapted to the remote-centric economy. For example, popular video-conferencing company Zoom (ZM - Free Report) saw shares catapult from $60 to $600.
Image Source: Zacks Investment Research
Fast forward to 2022, and tech stocks faced their next hurdle – pricey valuations coupled with the highest inflation rate in four decades. The toxic combination led to devasting returns of more than 30% in the Nasdaq 100 ETF (QQQ - Free Report) and drawdowns of more than 90% in several individual equities.
What’s Next for Tech Stocks?
To look to the future, looking back at the past can often be helpful. Despite the many obstacles in U.S. equity markets over the past decade, tech returns have been phenomenal. For example, even with the tech debacle of 2022, the Nasdaq 100 ETF gained 321% over the past ten years.
Image Source: Zacks Investment Research
Through scare after scare and multiple black swan events, tech stocks continue to climb the proverbial “wall of worry”. Now, the space is experiencing yet another potential hurdle to climb over – the regional banking debacle that was sparked by the Silicon Valley Bank’s collapse. Today, I will provide 5 reasons why tech investors should look past the banking uncertainty and warm up to tech stocks.
1. Price & Volume is “Truth”: Investors should defer to the price and volume action over frightening headlines when in doubt. Why? Price and volume represent actual bets made by investors, while headlines represent rhetoric. Thus far in March, QQQ is only down ~1%, while the Russell 2000 Index ETF (IWM - Free Report) is down nearly eight times as much. In other words, the market shows that the tech sector may not suffer the impact that the small cap space is currently experiencing. The QQQ is also finding support at its 200-week moving average – an area that marked major bottoms the past four visits.
Image Source: Zacks Investment Research
2. Fed Pivot Potential: A rising interest rate environment has been disastrous for tech stocks. The recent banking crisis may actually benefit tech stocks by providing liquidity through a relief in rate hikes. Fed fund futures now suggest that there is a slightly higher chance of no hike than a hike during the next Fed decision meeting.
3. Larger Tech to Suffer Less Impact: While, the collapse of Silicon Valley Bank spells trouble for start-ups, larger, cash rich companies such as Apple (AAPL - Free Report) should suffer less of an impact.
4. Money Flow Out of Small Caps: Since regional banks and small caps are experiencing a large outflow of funds, institutional investors may look to reallocate capital to the tech sector.
5. Valuations Shrunk: Falling stock prices has led to attractive valuations in big tech stocks such as Amazon. Amazon’s price-to-sales ratio is at its lowest level since 2010.
Image Source: Zacks Investment Research
Bottom Line
For the above reasons, tech stocks may be set for an unexpectedly strong 2023. The price action, shrinking valuations, and influx of liquidity point to large potential gains ahead. Investors should focus on large tech stocks such as Apple in the months ahead.