Topline
While the general market remained Thursday, tech stocks continued to perform, with experts warning that the sector could plummet further after a year of eye gains that pushed the tech-heavy Nasdaq up more and 100% at its mid-range peak. .
Traders work on the floor of the New York Stock Exchange.
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Key facts
The Nasdaq ticked 0.1% on Thursday, but the index is still down 8% from its February 12 high; meanwhile, the Dow Jones industrial average jumped 0.6% and is just 1% off its most recent high last Wednesday.
David Bahnsen, the chief investment officer in charge of some $ 2.6 billion in assets at California-based Bahnsen Group, said in a note on Thursday that it was an “old-fashioned reprint.” in the “undeniable” weakness in tech stocks after meteoric gains that pushed “too high” valuations during the pandemic.
Bahnsen expects the underperformance of the index to continue and the vibrancy is similar to the “strong historical priority” set by the technology bubble in 2000 – when the Dow rose while the Nasdaq falls.
“Ripe for correction” is any stock trade for between 50 to 100 hours of earnings, which at the low end is more than twice the S&P 500 average earnings average of about 19, Bahnsen says.
That includes stocks going up Thursday’s loss, including Netflix, down 3.5% and trading at 86 times slowing earnings, and Amazon, down 1.3% and trading at 75 hours employment; they have fallen 7% and 12%, respectively, from their highs at the end of last year.
Other stocks at risk from haircuts include recent Zoom Video Communications, pandemic darling Peloton, fintech Square and Tesla – all trading for at least 100 times earnings.
Quote Cruise
“The weakness in technology stocks is unbelievable, but it is unlikely to be a straight line for the region and there will be zigs and zags along the way,” Bahnsen notes, noting tech stock valuations are usually “too high and screaming for correction.”
Key background
Rising interest rates have created headlines for high-priced stocks a few weeks ago, and Bahnsen doubled down on that view Thursday, saying the rise in tech stocks was exacerbated by a risk-free rate. close to zero. Investors looking for a return turned to the stock market, but with 10-year Treasury yields climbing more than 70 basis points over the past three months, expensive stocks are selling on because of the risk-free asset class. Morgan Stanley estimates that firms in the S&P could be in for an average cut-off of 18%, relative to earnings, for every 100 basis point increases in 10-year Treasury yield.
What do you look
If the wider stock market weakens, Bahnsen says consumer staples are the best defensive position, but if the market continues to climb, he believes the power and finance sectors will continue to is getting better and better.
Further reading
Covid-19 decline: 10 significant numbers that summarize America’s economic crisis a year later (Forbes)
Dow drops 150 points as Nike plunges over Chinese boycott and Labor-linked ties under pressure (Forbes)
Bitcoin, Tesla And GameStop: Ten Numbers Summarizing The Fastest Market Recovery Ever (Forbes)