06th Nov 2020

Where US Tech Stocks Could Go from Here

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The first half of 2020 wasn’t a great time for the stock markets. This was mainly due to the Covid-19 pandemic raging throughout the world. In fact, in March, 2020, the US stock markets suffered the worst single day decline since the stock market crash of 1987. From a record high of 29,551.42 in February, the Dow lost 5,700.40 points or 19.3% by mid-March. Multiple “circuit breakers” were also triggered to curb the panic selling. 

But the US stock market has recovered considerably from those March lows. This has largely been on the back of bullish tech stocks. Tech stocks performed incredibly well after the crash. In fact, by August 2020, US tech stocks were worth over $9 trillion. This was higher than the value of the entire European stock market. 

The Story Till Now

Technology stocks have been outperforming the broader market for most of 2020. But it has not been a smooth ride. After the lows of March, tech stocks reached new highs in August. While the S&P 500 was up just about 7% by August, Facebook and Microsoft had risen 40%, Alphabet 19%, Amazon 79% and Apple by 66%. 

One of the reasons for the increase in the valuation was the lowering of interest rates by the Federal Reserve. But the major reason for this surge was the forced shift to everything digital, due to the pandemic. There was an increase in demand for work from home solutions, such as video conferencing, along with online shopping, digital payments and online learning. As a result, the time spent on the internet was at an all-time high. 

But this bullish sentiment towards tech stocks could not continue in the next month. In September, the S&P500 lost almost 4%, while the Dow Jones Industrial Average also fell 2%. Google’s parent company, Alphabet, closed down 10% for the month, Apple was 10.25% down and Microsoft fell 6.74%. Many believed such correction was long overdue, with the value of many tech companies being overinflated. The decline raised doubt in the mind of many traders about what the future holds for tech stocks. 

Is Technology the Future?

In the coming months, the overall stock market is expected to remain volatile, driven by the persistent pandemic and the outcome of the US presidential elections. But, the value of tech stocks is expected to rise once gain. This is because even after the pandemic is over, chances are that the world will remain more digitally focused. The shift might be forced for now, but people have realised that these tools provide immense convenience, along with greater efficiency. Even retail giants, such as Nike, who moved online, experienced a 16% increase in share price in 2020, showing that a digital shift is not only possible but also profitable. 

The other factor is that history signals that tech stocks can be poised for reaching new highs in 2021. Historically, after a big correction, the returns for the Nasdaq are generally positive for the next 6 to 12 months. The only exception was the slump of 59% after the 2000 correction. Additionally, there are low chances of the economy closing down again due to the pandemic. The interest rates are also expected to remain around 0% for the near future. 

All these factors paint a favourable picture for tech stocks in the near future. But it is important to remember that these are all predictions and not certainties. Staying updated with market news and robust analysis are indispensable to making informed trading decisions. 
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