Last week hurt. The sudden return of volatility sent all of your favourite technology names, Apple, Facebook, Google, Netflix, Amazon, hurtling downward. These stocks saw drops of 10% or more.
A lot of ideas were floated as to what we should blame, but most fingers landed on the Fed, for increasing interest rates “so quickly.”
The fear is that as yields rise, borrowing costs will grow higher, slowing the growth of the U.S. economy, and perhaps even the world by proxy. This caused some market investors to spook and pull cash from their accounts. But why did Tech take it on the chin specifically? Well, when the majority of the market’s gains are coming from a handful of powerful growth technology stocks, and when most investors own at least some of these stocks, it makes sense that they get sold hardest when market investors spook. Simply put, Tech sold off hard because Tech is so broadly held.
Is this an argument against holding Technology? No, oh goodness no. Apple is a strong company. Amazon, Netflix, Google, all of these are market dominators with high growth prospects. Of course you should always pursue diversity in your portfolio to hedge against pullbacks, but Technology is still an absolutely darling sector. However, I do think this recent market pullback has left most investors nervously wondering two questions.
Is this the beginning of the end, is this the start of another recession?
What should I do?
First and foremost, you should speak with your financial advisor. Get his/her opinion, read their thoughts, listen to their strategy insights. If you don’t have a financial advisor, get one fast. Investing alone is all well and good, but when spooky market conditions hit, you don’t have to be responsible for any emotional pull-outs you may make.
As for my read of the situation, I don’t think this is the beginning of the end. I see a Federal Reserve increasing interest rates, which will always put a damper on the economy. I certainly see some signs of heat in certain sectors, but its exactly sell-offs like this that let some of that pressure out, without a major fall. The situation with Saudi Arabia is a little tense right now, which adds some downward pressure to stock prices. That will be resolved soon, one way or another, and markets will recover. I believe the years of booming growth may be over, for now. I would guess the next year or two isn’t as exciting as the past three were. And that’s okay. There is still plenty of incentive to participate in this market, plenty of high-value stocks that will either grow or pay dividends for years to come. I see this sell-off as an opportunity for anyone who is regularly adding cash to their investment portfolio. If you do not regularly contribute to your investment portfolio and are already fully torqued, I’m sorry to share that you can’t capitalize on opportunities like this one. You should really consider making monthly deposits so that you or your advisor can snap up shares of Amazon trading at a ~12% discount.
So, in conclusion, I am not of the opinion that Tech’s latest fall signals anything more than a buying opportunity for those with a little cash on standby. There just isn’t enough there to fan the flames of a full-blown route. A little interest rate hike and international tension may be enough to spoil the soup for the week, but I am optimistic that, this too, shall pass.