Tech Bubbles: Anxiety returns every time a market collapses

Over the past several weeks, people have repeatedly issued warnings about the valuation of technology stocks, which can cause sell-offs. However, this obsession becomes even more frightening when the market falls. At the moment, $ 2,000 billion has been blown away from the US stock market. The Wall Street fear index has also risen to the highest level since April. The return of the Covid-19 pandemic threatens the economic recovery.

However, not long before that, US stocks continuously broke historic peaks. Big tech companies like Apple to Amazon lead the uptrend of the market. However, the big guys’ shares were considered too expensive to increase any further.

American technology’s darlings have risen 10 times higher than the market. However, the tech giants also face a not so bright future. Software giant SAP SE puts its future earnings warning when it warns revenue will plummet by 2021.

Matt Maley, chief market strategist at Miller Tabak Co., said: “Uncertainty regarding Covid-19 and its impact when a second wave flares up causes concern. A few more tech companies say they’re going to have trouble in 2021 like what SAP did, we’re going to have trouble. ”

On October 28, the S&P 500 fell 3.5 percent, closing at a five-week low. Technology shares fell 4.3%. Alphabet and Facebook lost more than 5%. VIX, the index used to measure investor fear, closed above 40 points.

Fears continued to skyrocket as major tech firms began reporting business results. Investors sold off Microsoft shares even though their third quarter earnings exceeded most of expectations and forecasts. Specifically, Microsoft shares fell more than 4%.

Next, facing the market’s consideration are 4 out of 5 biggest enterprises with capitalization of 5,000 billion USD. Apple, Amazon, Facebook and Alphabet all released their reports on October 28 but after the market closed. All of these companies are expected to release a nice report on Q3 business results. However, the focus seems to be on how they rate Q4 and the start of 2021.

“Technology stocks have made a huge contribution to the market’s recovery in 2020, the earnings of these big tech companies will actually play a boosting role. The risk is it could drive the market. in a negative direction and it will look like a snowball is rolling downhill, “said Chris Gaffney, president of world markets at TIAA Bank.

In the long run, buyers have flocked to tech giants for the security of a strong balance sheet and increased demand for tech services as people stay at home. However, a resurgence of the Covid-19 pandemic and the possibility that the US Congress will not pass the stimulus has sparked speculation that technology stocks will not meet the high expectations of investors. .

“It will be the moment when the bubble burst,” said David Einhorn, president of Greenlight Capital. Linking the market with excessive euphoria and the increase in option trading into the technology industry, Einhorn showed a pessimistic view. The investor believes that the top of technology shares was September 2, and since then, the Nasdaq has fallen by nearly 10%.

“Bubbles often burst because of their own size. Everyone has participated,” Einhorn wrote in a note to investors on October 27.

Normally, good sales calm the market during times of stress. However, this does not seem true at the moment. Of the S&P 500 companies that published their results, 85% exceeded analysts’ estimates. However, this does not make buyers excited, but on the contrary, they compete to take profit.

For that reason, companies on the S&P 500 all suffered the same outcome as stocks fell 0.8% on average after the release date. Tech stocks suffered worse declines, on average 2.7 percent of their value blown after the release of the report, compiled Bloomberg data.

Peter Boockvar, chief investment officer at Bleakley Advisory Group, said: “The reaction of the stock market after reopening to AMZN, FB, GOOG and AAPL shares will tell the fate of the tech sector. “.

For now, tech companies have yet to prove their surge during a pandemic is not fleeting. Microsoft did not hit revenue in some divisions, Intel unexpectedly dropped chip sales, Netflix failed to reach an estimate of subscriber base raised doubts about the growth of technology companies after the the shutdown of the economy because of the pandemic.

“Nobody questioned the business models of these businesses. People were just asking if they had gone up too fast, too strongly,” said Peter Tchir, head of the Academy’s Macro Strategy. Securities, comments.