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Tech stocks continue to bleed as investors dump longer-dated U.S. Treasuries, pushing up yields and whittling at the premiums commanded by growth stocks
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Pullback is welcome as it provides both buying opportunities and a chance to reduce otherwise frothy valuations
If 2020 was the year for tech stocks (since when did they become a defensive play?), then this year has been the year for tech tantrums.
As the rest of the world floundered because businesses that required face-to-face contact couldn’t operate in a pandemic year, technology firms were a life preserver in a sea of red, pushing up indices, and attracting eye-watering valuations.
But signs of an economic recovery and rising U.S. Treasury yields have marked a sharp turnaround for the prospects of tech firms.
This year alone, the Nasdaq 100, has erased any gains made in 2021 twice.
And some analysts are warning that as vaccinations get under way in earnest, tech firms are likely to get hit the hardest, with a reflation trade that should see followers of Warren Buffett’s value mantra laughing all the way to the bank.
To be fair, valuations have gotten ahead of themselves, and the pullback could be considered healthy to set tech firms on a longer term and more sustainable growth trajectory.
Taking some of the froth off could present some opportunities to pick up some tech stars on the cheap.
Companies like Amazon (-3.44%) enjoyed a huge boost to their bottom lines during the pandemic and longer term, consumer habits like online shopping are likely to prove durable.
Video communications have for many ushered in the welcome end of the office commute and certain business practices like “Zoom” (-6.04%) have turned from nouns to verbs, suggesting that these firms aren’t likely to head off into the sunset anytime soon.
But with U.S. Treasury yields at the elevated levels that they’re at, and concerns over inflation weighing heavily, tech firms are likely to come under increasing pressure if not for one thing – retail investors.
