Geopolitical forces only add to the tech bearishness apparent in the Direxion Daily Technology Bear 3X ETF (TECS). The fund is up over 40% year-to-date and could keep on rising as the Russia-Ukraine crisis continues to play out.
While much of the capital markets can point to the recent volatility on Russia’s invasion of Ukraine, the tech sector has been faltering even before the invasion. A broad sell-off has been in the works since late last year as the prospect of rising rates tamped down growth prospects for tech.
“Tech-stock prices have been falling steadily since November, pressured by rising interest rates, which have spurred a sharp contraction in earnings and sales multiples for the high-growth tech companies that fared best during the pandemic period,” a Barron’s article said. “High-growth, high-multiple stocks in some cases have losses that look more like a crash than a run-of-the-mill bear market.”
Losing the Pandemic Mojo
Tech looked seemingly untouchable during the height of its bullishness during the pandemic. With social distancing measures elevated, a heavier reliance on technology ensued.
As such, companies like Zoom saw their valuations soar as more individuals relied on the internet to stay in contact with loved ones or their co-workers. Now, that same tech dominance is starting to wane as the global vaccination push is showing its effectiveness as Covid-19 cases drop.
The world is starting to return back to pre-Covid life, and it’s showing in the fundamentals of tech.
“What these companies broadly have in common is a sense that their underlying fundamentals have changed—that some of the pandemic-era behavior, in particular acceleration in working, learning, and shopping from home—is ebbing. And investor enthusiasm for stocks with sky-high multiples has faded, as well,” the Barron’s article said further.
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