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Long Road Ahead For Tech Stocks Recovery?

by Jonathan Adams
tech stocks

In late January a run on tech stocks pulled equity markets down after several months of uninterrupted gains. The same thing happened in March. Both times big tech, led by the FAANGs bounced back and went on to new highs. But October saw a more gruesome tech bloodbath with $200 billion wiped off the value of Apple, Amazon, Alphabet and Microsoft, the world’s 4 most valuable technology companies.

The recovery wasn’t quite so assured this time. And on Tuesday of this week the same four saw their collective market capitalisation shed $150 billion in a single day. This time it looks like investors may not be quite so easily tempted back.

Private individuals investing online and large institutional investors look like they will take much more convincing this time before moving back into tech stocks with the same gusto as they have done over the past few years. The worries that caused the January and March corrections, slowing growth, regulatory tightening and a clampdown on funnelling taxes through cheaper territories regardless of where sales were realised, now loom closer on the horizon. And throw in the U.S.-China trade war and increasing signs of a global economic slowdown.

The question for investors has now more become how steep will big tech’s 2019 slowdown be rather than if there will be one. Semiconductor stocks are often considered a bellwether for the tech sector and things are not looking good. The revenues of chipmakers are currently being forecast to decline 4% in 2019. It will be the first year of negative growth for the sector since 2015. Growth is forecast to drop to around an average of 14% across the FAANGs. That’s still impressive but a notable slowdown from the 20%+ of recent years.

That is concerning investors because multiples are so high. What happens during the next significant world recession? 10 years ago these companies were less mature and didn’t dominate the global economy in anywhere near the same way as they do today. That means they are likely to be far more sensitive to wider economic conditions.

And investors are beginning to brace themselves for just such a downturn. They don’t know if it will come next year, in two years or in five years but it is now anticipated. And that means they will be wary about paying the premium tech stocks represent. It’s unlikely that the recovery from the recent tech stocks slump will be a quick rebound this time.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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