Finance & Economics

Big Tech Rebound: Can It Last?

Technology stocks had their biggest comeback since the start of the global financial crisis last week. Investors wonder if that would last

big tech stock

Big Tech Rebound: Can It Last? Source: pexels.com

The Nasdaq Composite finished the week with its biggest two-day gain since 2008. October inflation data appeared milder than previously expected. Therefore, it revived investors’ hopes that the Federal Reserve would slow down its pace of interest-rate hikes. Tech stocks experienced a fresh boost, but how long can it last?

Investors worried about the prospects of the tech segment recall previous industry selloffs as the dot-com bubble burst in March 2000. In those cases, the downturn was marked by big swings up and down that lasted for many months.

“This is typical of a big bear market rally. It is not over,” said Julien Stouff, founder of hedge-fund firm Stouff Capital.

Therefore, investors shall look for fresh data on retail sales and other corporate results to try to estimate the market’s future trajectory.

Even after the surge of the past week, Nasdaq is down 28% in 2022, while the S&P 500 is down 16%. Separate tech winners are also showing weak results. Thus, Cathie Wood’s flagship ARK Innovation ETF has plunged 57% this year, while Amazon shares have lost 40%. 

Nevertheless, despite lower stock valuations, many technology companies don’t look cheap, said David Eiswert, a portfolio manager at T.Rowe Price. To better understand the current market situation, we should look back at a few years ago. 

For example, the Nasdaq-100 has an enterprise value-to-sales ratio of 3.71. Although the indicator is down from 5.40 at the start of the year, it is still around the levels seen in 2019. Moreover, it is higher than the Nasdaq-100 value-to-sales ratio average over the past 10 years which is around 3.35.

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