The first three months of the year for technology stocks clearly reminded markets how harshly Wall Street could punish former pandemic stars. The companies that benefited from the period when everyone was locked up in their homes, such as Etsy Inc., Netflix Inc. and PayPal Holdings Inc. are among the biggest losers in the S&P 500 index this year. They were swept away by a wave that wiped out $ 1.3 trillion from the market capitalization of the Nasdaq 100 and affected even the biggest names in the market, such as Amazon.com Inc. and Apple Inc. reported Bloomberg TV Bulgaria.
The turnaround for some of the hottest stocks in 2021 makes technology one of the hardest hit sectors in the S&P 500. Geopolitical tensions and supply chain problems have added concerns about rising interest rates and rising bond yields – which could affect on the present value of future profits.
“The most profitable companies in the pandemic must face a situation in which the whole boost related to Covid has disappeared, and in the current economic environment everyone is struggling with huge inflation, which limits individual purchasing power and will put pressure on discretionary costs in the future.” said Jim Dixon. , a senior stock trader at Mirabaud Securities.
Part of this collapse was compensated. Those who initially fled the sector began to return, lured by bargain prices and the belief that some iconic names would continue to generate bigger profits. Still, the Nasdaq 100, down 7.7 percent since the beginning of the year, is heading for its first quarterly decline since the March 2020 pandemic sell-off after hitting sword territory this month.
Here’s a look at some of the significant trends for the quarter:
1. From pandemic boom to collapse
Shares of companies that thrived during the restrictions due to Covid are falling as demand for their services dwindles when consumers are free again. The manufacturer of home fitness equipment Peloton Interactive Inc. has lost 20% of the value of its shares, and the provider of electronic signature solutions DocuSign Inc. – 29%. Shares of e-commerce company Etsy and those of online payment company PayPal fell 39% and 37%, respectively. Investors will expect results for the first quarter to see if companies can revive their growth in the post-pandemic era.
2. Decline in social networks
Shares of Pinterest Inc. and Snap Inc. cheaper most of the social networks affected by Apple’s privacy updates. The new rules have made it difficult to effectively track consumer habits in order to provide targeted advertising. The shares of each of them have fallen by more than 20% this year. The parent company, Facebook Meta Platforms Inc., which owes almost all of its revenue from ad sales, has lost 32% of its value. Global X Social Media ETF, which includes Tencent Holdings Ltd. and Alphabet Inc., decreased by about 20%.
3. The unknown in China
The uncertain regulatory environment in both the United States and China has caused a stir in Chinese stocks traded in the United States. The Nasdaq Golden Dragon China Index lost 16% this quarter amid continued austerity measures by Beijing. Another source of uncertainty is the US Securities and Exchange Commission, which continues to increase the list of companies that can be removed from US stock exchanges for violating the audit law. The shares of Alibaba Group Holding Ltd. have lost 1.9% this year, those of Baidu Inc. – 3.3%, while those of JD.com Inc. and Pinduoduo Inc. have fallen by 12% and 25% respectively.
4. The Faangs Fault
The most famous group of companies, which usually lead the leap in technology stocks, were divided in their recovery. While Amazon and Apple made some gains in March, Netflix and Meta collapsed this quarter, losing more than $ 400 billion in market value due to uncertain growth prospects. The NYSE FANG + index has lost almost 9% since the beginning of the year.
5. Cybersecurity boom
Russia’s invasion of Ukraine has further fueled growth in a group of companies that were already among the winners of the pandemic: cybersecurity firms. Stocks like Crowdstrike Holdings Inc. and Palo Alto Networks Inc. have seen double-digit price growth since the beginning of the year, with investors betting on further increases in cybersecurity spending.
The strong recovery in US technology stocks over the past two weeks has brought a measure of market width to its highest level in nearly a year. The number of Nasdaq 100 companies whose shares are trading above their 50-day moving average has jumped to 78%, the highest since April 2021. This is a sharp change in the fate of the measure. Only a month ago, this ratio was only about 12%.
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