Nasdaq correction confirms tech is tough picker’s market
At its intraday low on Thursday, the Nasdaq Composite was trading 10% below its high last year, which means the broad measure of tech stocks has begun 2016 in correction mode.
The bearish move confirms that the tech sector ended 2015 overvalued, as we asserted last week in our year-end review.
It also suggests the upcoming year will be a more-difficult stock-picker’s market even than last year, when many tech stocks posted big losses even though the Nasdaq climbed nearly 6%.
It’s a trading environment always fraught with peril for retail investors, who lack the resources and expertise of hedge funds, in--
vestment banks and professional money managers.
No surprise then that shareholders in companies including Qualcomm, Yahoo, Alibaba, Oracle, Baidu, IBM and EMC suffered double-digit losses in 2015 even while the broader market rose.
While economic turbulence in China and worries ranging from Middle East tensions to North Korean nuclear tests are grabbing headlines this week, amore fundamental cause is weak corporate profits in the U.S. Fourth-quarter earnings for the S&P 500 companies are expected to fall 7.3% from a year ago, while sales are seen dropping 3.3%, according to the latest research from Zack’s.
“The magnitude of negative revisions to Q4 earnings estimates is greater than what we’ve seen for the preceding two quarters,” says Sheraz Mian, research di- rector for Zack’s Investment Research.
And it’s not just the energy sector’s free-fall over the collapsing price of oil: Fully a dozen of the 16 index sectors tracked by Zack’s are expected to post lower quarterly profits reports this month.
A safe course in this environment is to dump your weak or vulnerable holdings in the sector. Start by pruning issues with the greatest exposure to China, including Apple, Alibaba, Tencent and Baidu. Another easy way to play defense is to sell issues that are marking 52-week lows this week, as Oracle and Twitter have. Similarly, IBM and Qualcomm on Thursday both traded within 1% of their lows.
Unless investors have a crystal ball or a really good money manager, the safest place to be in tech this month, it seems from here, is on the sidelines.