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Is it time to give up your tech stocks?

Tech stocks have fallen dramatically over the last 8 months with the Nasdaq down nearly 27% so far. Of course, this decline has been a major focus in global investment circles, with the question for investors as to whether they should consider switching out of shares in case they fall even further, or whether it is now a good time to invest?

Schalk Louw, Wealth Manager at PSG Wealth is of the opinion that the more relevant question to ask is whether we are seeing a repeat of the 2000 Dot Com crash.

“The Dot Com crash was really the result of three major themes,” Louw said. “First, tech stocks, and by implication the Nasdaq, traded against extremely high ratings (PEs) in the late 1990s and early 2000s. Second, the US Federal Reserve (Fed) began tightening its monetary policy, raising interest rates 6 times between June ’99 and May ’00. And then, thirdly, this monetary tightening resulted in an economic downturn, followed by a recession.

You do not have to be a market expert to notice that these themes from the Dot Com crash are back on the agenda in today’s market environment, Louw said.

“To begin with, the Nasdaq traded against ratings that were last seen in the so-called Dot Com era at the beginning of 2022, even though economic growth had not met market expectations.

“In March 2022, the Fed decided to strengthen its monetary policy and raise rates for the first time since 2018. The effect of interest rate hikes on both economic and revenue growth is well documented,” he said.

In June 2022, the Fed surprised the market by raising rates for the third time, but instead of raising the Fed rate by 0.5% as expected, they decided to increase rates by 0.75%. This prompted quite a few leading economists to declare that, according to them, the US would inevitably go into a recession, as was the case in the early 2000s. All of this came to bear in the fact that the Nasdaq had its worst first half of the year on record in 2022.

“Even after declining nearly a third of its heights, one can see that the Nasdaq is still not trading at levels that can be considered very cheap, and history has shown us how P / Es can fall. and remain empty for a while. ” warned Louw.

Louw points out that the damage done to investors’ portfolios so far this year is really evident when one takes a step back from the index and looks at individual counters.

For example, pandemic-era darlings of Netflix, Shopify and Zoom are down -70%, -74% and -40% respectively in the first half of 2022. The megacaps are also not spared. Apple is down -23%, Microsoft is down -24%, while Facebook has lost a staggering -53% of its value so far this year.

Is this the end of the correction?

“What we do know now is that inflation is not yet under control, and according to the Fed, interest rates will continue to rise this year,” Louw said. During the Dot Com correction, the Nasdaq traded 36% of its highs, six months to the top. Then investors asked the same questions we now ask, and they were answered – 18 months later. The Nasdaq traded up a further 40%.

Will this time be different? “We have to wait and see, but the agreements are sharp and extreme caution is recommended,” Louw said.


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Is it time to give up your tech stocks?

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