Schalk Louw | Tech stocks: Will this time be different? | Fin24

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The similarities between the current tech sell-off and the dotcom crash are stark and extreme caution is advised, writes Schalk Louw.

Tech stocks have fallen dramatically over the past eight months with the Nasdaq down almost 27% year to date. Naturally, this decline has been a key focus in global investment circles, with the question front of mind for investors whether they should be considering switching out of stocks in case they fall even further, or whether now is a good time to be invested?The dotcom crash was really as a result of three major themes.

For starters, the Nasdaq was trading at valuations last seen during the so-called dotcom era, even though economic growth had not reached the market’s expectations. In June 2022, the Fed surprised the market by hiking rates for the third time, but rather than increasing the Fed rate by 0.5% as expected, they decided to raise rates by 0.75%. This caused quite a few prominent economists to state that in their view, the US will undoubtedly go into recession, as was the case in the early 2000s. This all came to bear in the fact that the Nasdaq had its worst first half of the year on record in 2022.

The damage which has been wrought on investors’ portfolios so far this year really becomes apparent when one takes a step back from the index and looks at individual counters.

 

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