By Oren Laurent
President, Banc De Binary
Throughout 2013, tech stocks seemed unstoppable. Facebook and Netflix saw their share prices double, while the Nasdaq Composite Index, which comprises more than 3,000 several Internet and biotech companies, rose a significant 28%. Is the tide now changing? Does last week’s market slump signify the end of traders’ obsession with tech?
Friday April 4th saw Amazon, Facebook, Google, Netflix, LinkedIn and Yahoo lose 4 to 5%, Microsoft 3% and Apple 1.5%. These are the very same companies that investors were cashing in on last year. The Nasdaq fell 2.6% and closed the day at 4,127.73, marking its largest one-day drop since February and putting the index more than 5% below its highest close so far this year on March 5th.
Interestingly, the tech stocks all fell despite a lack of any dramatic news or economic data. In fact, the Federal Reserve’s policies are credited with pushing stocks higher and Friday’s Non-Farm Payroll indicated that 192,000 jobs were created last month. The economy has been progressing steadily, with the S & P 500 index, a good reflection of America’s overall economic health, ending the week a little higher than it began.
So what caused this change in market sentiment? If a fundamental event or cause is not behind the wave of uncertainty, the most likely explanation seems to me to be that the market simply had to correct itself at some point. The high levels of investments in these stocks perhaps reached a point of overheating. Investors started to question if their assets were worth quite as much as they had originally believed and as soon as a small number started to sell-off, this created a ripple effect in the markets and influenced public sentiment. In short, the markets needed a small correction and calming before they could continue onwards.
Indeed, I see no evidence to suggest that tech stocks are going down long-term. At present, many companies are looking to adjust to the quickly changing tech scene and evolving public demands. Microsoft, for example, are adapting to the post-PC era and entering the smartphone space, while Hewlett-Packard are increasing their sales of software. Changes like these typically come with risks, but also create new opportunities.
There is no time like the present for investors to evaluate the potential of different stocks and carefully consider their options. Don’t be deceived by Friday’s dip; for the smart investor, tech stock could still offer remarkable returns.
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