Tech stocks: End of the mania?
“In just seven days, $1 trillion vanished from the value of seven of the big U.S. growth stocks,” said James Mackintosh in The Wall Street Journal. “One trillion dollars.” The period of excess in tech stocks of the past few months may not be precisely a “bubble”—it hasn’t been accompanied by a boom in new stock or debt that’s common in financial manias. But last week’s plunge certainly felt like a bubble popping. “The broader economy is at much less risk today than at the time of past bubbles,” but if tech stocks keep falling, we can still see plenty of disruptions. The biggest tech companies are so rich, they “won’t need to slash spending even if their shares crash.” But venture-backed startups will become much less appealing if there is no near-term prospect of a big IPO. And while so far the drop has been confined to tech, “when the market leaders fall, traders and investors might just become more cautious, hurting everything.”
Before last week’s decline, the “tech herd” of eager speculators had sent tech share prices “into the danger zone associated with the dot-com bubble,” said Michael Mackenzie in the Financial Times. Those who bought tech at its March lows have still gained 60 percent on their investments; this has merely “blown off some of the froth.” The big problem for investors who believe that tech stocks will fall even further: “What is the alternative?” Tech still offers the best prospects for growth in the pandemic and postpandemic world, with digital trends only accelerating. “That makes it hard to call time on Big Tech.”
We’re witnessing a “textbook correction,” said Michael Santoli in CNBC .com. The stocks that have dragged the Nasdaq index down—Amazon, Microsoft, Apple, and Tesla—are precisely the stocks that had pushed it up. The damage hasn’t extended to the rest of the market: The average stock in the S&P has fallen just 2 percent this month. This is a market that is “trying to sort out how much payback is needed to correct for a whopper of an August overshoot rally.” Still, for new investors this has been a “harsh lesson on how the stock market works,” said Michael Wursthorn and Mischa Frankl-Duval in The Wall Street Journal. Some amateurs “used options to place big bets that tech stocks would continue to rise unimpeded, and were wiped out.” Others are now left holding shares that they bought hoping to capitalize on the surge for a quick gain; a few of those are still buying, convinced that this is just a brief dip. Either way, few of the investors who’ve been opening new accounts at record-setting rates are prepared for the emotional roller coaster they’re now riding.