Throughout the Covid-19 pandemic, technology companies delivered record returns and investors poured dollars into fast-growing tech stocks.
However, as people returned to work and a host of economic factors took hold, 2022 is providing a reality check for tech investors. The sector is seeing massive sell-offs, and tech indexes are now firmly in bear market territory.
The tech-heavy Nasdaq Composite dropped more than 26% since the start of the year. Once high-flying stocks have reported record declines in the second quarter of 2022:
- Tesla’s stock sank 38%, its largest quarterly decline since going public. The company delivered 18% fewer vehicles than in the previous quarter.
- Amazon stock dropped almost 35%, the most since the third quarter of 2001. The company’s first-quarter earnings fell short of analysts’ estimates in April as revenue growth slowed.
- Facebook parent Meta Platforms fell more than 27%, after contracting by nearly 34% in the first quarter. In February, the company said Facebook daily active users declined quarter over quarter for the first time.
- Second-quarter performance wasn’t much better for Apple, Microsoft, and Alphabet, all of which faced declines.
Inflation is at a 40-year high. The Federal Reserve is raising interest rates aggressively. Russia’s war against Ukraine continues. Tech stocks are facing challenges on many economic and geopolitical fronts, not to mention a valuation correction after a decade of growth.
The MSCI World Information Technology Index reached a valuation peak on January 21, 2021, with a price-to-earnings multiple of 30.6x, the sector’s highest valuation level since the dot-com bubble burst 20 years earlier. At today’s level, technology valuations are close to their long-term average. As of June 23, the MSCI World Information Technology Index traded at 19.6x, compared to a 10-year average of 19x and a 5-year average of 22.5x.
Amid a turbulent time for technology stocks, clients may now find themselves in unfamiliar investing territory, as they look at — and beyond — their current technology holdings.
To help clients navigate this new terrain, you need to be prepared to answer questions:
- How is the tech downturn affecting my portfolio?
- Where should we be looking for opportunities now?
- Is now the time to search for tech bargains?
- Is it time to consider value opportunities?
- How does this downturn compare to others?
FundVisualizer® can be a valuable source of information for answering client questions. FundVisualizer enables you to easily evaluate more than 30,000 funds, ETFs, and indexes using over 80 performance and risk metrics, making it an ideal way to explore new investment opportunities. FundVisualizer also allows you to make head-to-head comparisons of funds, and create and model portfolios. FundVisualizer’s chart tools help you examine clients’ asset allocation, sector exposure, top holdings, and more.
Especially useful now may be FundVisualizer’s Explore tool, which can help discover funds with similar tech exposure to a fund you already own, but with different risk characteristics.
The Nasdaq Composite Index is a widely recognized market capitalization-weighted index that is designed to represent the performance of NASDAQ securities and includes over 3,000 stocks.
The MSCI World Information Technology Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets in the information technology sector.
Putnam Retail Management.