Investors are being urged to bolster their stakes in top technology stocks as the Nasdaq Composite crossed the market ‘correction’ line overnight.
Big name tech stocks that have led Wall Street to scale successive peaks during the past year’s rally fell again in New York, pushing the tech-heavy Nasdaq Composite into corrective territory. Tech heavyweights including Apple, Tesla, Alphabet and Nvidia fell sharply, led by the latter’s near-7% drop.
CORRECTION TERRITORY
The Nasdaq Composite finished the day down 2.41%, roughly 10.5% below its 12 February record close of 14,095.47.
The rule of thumb for a market correction is when it declines more than 10% from its previous peak. A bear market is when the fall hits 20%.
But Nigel Green, chief executive and founder of independent global advisor deVere believes that this represents an opportunity for investors to add top tech stocks to portfolios.
‘Value stocks are in revival mode, but does anyone suddenly seriously think Amazon, Google and Tesla are not companies of the future also,’ he asked rhetorically.
DON’T IGNORE GROWTH
Green said that much is being made of the phenomenon of rotation into sectors that could benefit from higher inflation and an improving economy, such as financial, industrial and energy stocks, and out of tech, that boomed during extended lockdowns.
‘I would suggest that it should not be a case of either/or, and that a savvy investor should incorporate both value and growth stocks into their portfolios,’ said Green. ‘In a post-pandemic era, it’s likely we’ll maintain some lockdown habits, like working from home more often, but we’ll also be back in the gym; we’ll travel and go to public events again, but we’ll also be more conscious of the environment and hygiene procedures.’
Analysts at BlackRock, the world’s biggest fund manager, also pointed out that the pandemic has ‘accelerated winner takes all dynamics’ that have led to the strong performance of a handful of tech giants in recent years.
‘We see tech as having long-term structural tailwinds despite its increased valuations,’ and BlackRock says tech remains one of its favoured investment themes.
STOKING INFLATION FIRES
After the US stimulus package won Senate approval on Saturday, President Joe Biden said he hoped for a quick passage of the revised coronavirus relief package by the Democrat-controlled House of Representatives so he could sign it and send $1,400 direct payments to Americans.
The prospect of more government spending and faster economic growth have stoked fears of a spike in inflation, sending the benchmark 10-year Treasury yield to near one-year highs.
Tech stocks are particularly sensitive to rising yields because their value rests heavily on earnings in the future, which are discounted more deeply when bond returns go up. But US Treasury Secretary Janet Yellen said on 8 March that while the package would drive a ‘very strong’ US recovery she did not expect the economy to run too hot because of the increased spending.
