NEW YORK—Technology stocks have been bearing the brunt of the recent market sell-off, highlighting how an extended slowdown in the sector could weigh on broader equity indices.
Following Monday’s sharp drop, the S&P 500 technology sector is down 6.7 percent as the S&P 500 closed on record on September 2, compared to a 5.2 percent drop for the broader index at the time.
The tech-heavy Nasdaq Composite, meanwhile, is down 7.3 percent from its September 7 high, close to marking a 10 percent correction.
The fall comes amid a slew of market concerns in recent weeks, including the Federal Reserve’s easy money policies, a surge in Treasury yields and a tumultuous battle between lawmakers over US debt limits.
Many investors are hesitant to cut their exposure to technology-focused stocks, which have led the markets over the past decade and are expected to deliver strong earnings growth even when the economic environment turns rough. Past declines in previous years have often been met with furious buying.
Still, the heavy weighting of broad indices, comparatively high valuations and widespread ownership have led some investors to worry about the consequences of prolonged poor performance for tech and tech-related names.
Here are some metrics investors are studying as they weigh whether to stay the course in the technology or withdraw their holdings:
a crowded business
Years of solid performance have made tech stocks a mainstay in Wall Street’s portfolios, periodically raising concerns that investors would be susceptible to violent market swings if they tried to sell all at once. can be.
A study by Goldman Sachs showed that Facebook, Amazon, Microsoft and Google-parent Alphabet ranked among the top five most popular hedge fund long positions for the past 15 consecutive quarters.
At the same time, 40 percent of fund managers surveyed by BofA Global Research in September said buying US technology stocks was the market’s most crowded trade, a designation tech stocks have received for three straight months.
S&P 500. load in
The tech sector itself holds 27.7 percent of the weightage in the S&P 500, which is more than twice that of the number two sector, healthcare. Adding four tech-related companies that are in other regions—Alphabet, Amazon, Facebook and Netflix—makes their weighting 38.8 percent.
According to Refinitiv Datastream, the technology sector trades at 25.8 times forward 12-month earnings estimates, compared to 20.7 times for the overall S&P 500.
Although growth and technology stocks have generally commanded higher valuations in recent years, some market participants worry that the category’s reputation for delivering year-over-year gains has helped push their prices past those levels. which can be justified by the basic principles.
Tech sector earnings last year fared better than the broader market as the coronavirus pandemic wreaked havoc on the broader economic front. As the world emerges from lockdown this year, tech’s profit growth hasn’t been as strong as that of the S&P 500 companies.
by Louise Kruskoff
This News Originally From – The Epoch Times