If you’re a trader who regularly invests in major tech stocks and indices such as the Nasdaq 100, you’ll have noticed that these entities have endured some incredible volatility over the course of the last few weeks.
Of course, this continues a trend that began with the stock market crash in March, during which time tech-led indices such as the Nasdaq 100 and the Dow Jones collapsed to record lows and endured unprecedented slumps.
This can largely be attributed to the ongoing impact of the coronavirus pandemic, although there may be wider issues that are being compounded by Covid-19. In this post, we’ll address the recent performance of tech stocks, while asking what may be about to come?
The Rise and Fall of Major Tech Stocks
Last week saw tech stocks fall, rise and fall again before Wednesday, while indexes such as the Nasdaq slumped into correction territory.
The S&P 500 also followed suit, closing a hefty 1.8% lower on Wednesday of last week and giving up 60 points when compared with the previous 24 hours. Incredibly, the previous day had seen the S&P 500 gain a whopping 67 points and 2% overall, while the Dow Jones also saw similar fluctuations and tech stocks faltered,
In the case of the S&P 500, Wednesday also represented the fourth trading session in the past five days that the index had either gained or lost 1.75%.
This is a huge consideration, especially as this entity makes up approximately 80% of the total US stock market capitalization and dominated by technology stocks.
There’s no doubt that this has continued an incredible year for tech stocks and indexes such as the Nasdaq, with the recent (and noticeably quick) correction coming after a sustained 83% after the pandemic-induced crash in March.
Craig Erlam from Oanda also noted that the tech-heavy Nasdaq increased by 27% between pre and post-pandemic peaks, completing a remarkable 12 months that has seen almost unprecedented volatility.
Are There Other Issues at Play in the Tech Market?
The latter point is particularly interesting, as it suggests that the recent volatility in the stock market may also be underpinned by wider issues.
More specifically, the pandemic may have compounded challenges already facing major tech stocks, especially in terms of their value proposition and the link between earnings and share prices.
For example, the share value and combined market capitalization of leading tech stocks have increased markedly throughout 2019 and 2020 overall, despite these entities not reporting similar hikes in earnings prior to the pandemic.
This automatically raises issues of sustainability, which have been compounded by the sudden hike in revenues that some brands have experienced as a direct result of the coronavirus pandemic. Take Zoom, for example, which has revealed a 355% increase in revenue to $663.5 million during the last quarter as the demand for its service has soared.
Given this, it’s little wonder that values have continued to fluctuate wildly, although the saving grace here is that the majority of tech stocks are now incredibly well-established and unlikely to collapse as a result of this trend.