I know a lot of you are not into single stocks, but it seems to me that SOME tech stocks have bursted (or are still bursting) without anybody caring too much. A lot of stocks have lost ~60 % from their all time high which was about in summer/autumn 2021. Am I the only one who thinks this was a bubble or is that only the case like dotcom when the whole market (Nasdaq etc.) drops heavily?
e.g. Block (formerly Square):
As you rightly point out, it was a bubble in a sector of the stock market, the bursting of which has not really been felt by investors who use a broad diversification. I guess people who invested in things like ARK might be hurting a little more.
Check out biotech (SPDR S&P Biotech). I believe this ETF is down even more than tech.
What do they have in common:
- high valuation
- no profits (not all but many)
With increasing rates and therefore rising cost of capital, WACC goes up and valuation goes down.
We need to see if inflation will spread to tech that have profits and high cash conversions. In theory, it should not happen some of those companies are under tech but generate crazy profits. However, we know world is never rationale. Moreover high volatility, high frequency trading and stop losses around key points may just amplify potential drop down.
Let’s watch the space. I feel market has still room to go down, especially as some large caps start to falter.
I think this time is slightly different from flash crash. Inflation may be slowing and painfully drag down stocks. People that are not used to rapid rebounds will lose patience…
Yes S&P Biotech is down ~40% from all time high compared to Nasdaq not even 15%. But as you said, there might be room to go down. Unlike during dotcom most of these overvalued tech stocks actually have revenue (but 0 profit) so they won’t implode that hard I guess. About the general market I’m not so concerned, as it will some day bounce back and in hindsight it will be only an opportunity to buy in cheap.
Its not only the Tech Bubble that shows distress - watch the US Buble and how it compares to Ex US this year… ok, its still a short time but the trend may be changing.