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Does currently down Tech sector offer an opportunity?

Team Veye | 16 May 2022

Does currently down Tech sector offer an opportunity?

Correction in Stock Market always gives us all the required knowledge and wisdom that Financial Experts or Books can't provide.

Over the last seven days, the ASX Tech industry has dropped by 3.2%. However, the industry is down 6.6% over the past year, dented by rate-sensitive technology stocks.

Tech stocks are known to be more vulnerable to swings in interest rates because of their high PE ratios. The growing weightage of Big Tech in indexes like the S&P has attached the future of the markets to these rate-sensitive giants.

When bond yields rise, investors get lesser returns at present by holding companies that might give higher returns in the distant future. Consequently, they drop expensively priced tech stocks and look for value stocks. This leads to a decline in the prices of tech stocks. However, this diverse relationship between tech stocks and bond yields is too far stretched.

The tech-heavy Nasdaq composite had the steepest fall and closed down by more than 4% on Monday. It had also ended April by giving its worst monthly performance since the 2008 financial crisis.

It rose 0.98% on Tuesday, but the broad tech selloff has nonetheless erased trillions of dollars in market value, with investors dumping shares of everything from semiconductor companies to gadget-makers and social media behemoths.

Last Tuesday, Amazon’s shares were trading more than 40% below the company’s 52-week high of $3,773.08, the lowest since February 2020. And shares of Apple, despite its record earnings last quarter, have dropped roughly 15% since early January. A recent revenue growth slowdown at Meta, the parent company of Facebook, led to a hiring freeze, amid a 47% drop in its stock price since September.

Seeing such hyped stocks available at cheaper prices can certainly lure investors but strategists urge caution amid expectations of heightened volatility in the coming months.

The sell-off in tech shares can also be seen as a good buying opportunity for investors, but analysts are looking for a still better time to go bargain hunting.

Also, won't better inflation indicators or the end of the Russian war prompt that change.

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