The Secrets Behind Tech Stock Volatility
Recently, U.S. tech stocks have been on a roller coaster ride, with market sentiment swinging with the ups and downs of the stock market. From mid-July to early August, the SOX Index, the Nasdaq Index, and the S&P Index fell by 27%, 14%, and 8%, respectively, causing a lot of anxiety. However, fortunately, the market seems to have rebounded over the past two weeks, with the three major indices recovering somewhat.
1.The Secrets Behind the Volatility
Firstly, there is the uncertainty in the macroeconomic environment. The direction of the Federal Reserve's monetary policy remains a mystery, coupled with volatile economic data, making the market extremely sensitive to each data release. Since the beginning of the year, the U.S. stock market has gone through phases of declining inflation, stagflation concerns, and recession fears, akin to the thrill of a roller coaster ride.
Secondly, the impact of the U.S. presidential election cannot be ignored. The two major parties have starkly different policy stances on trade, taxation, and other issues, leaving the market uncertain and increasing volatility.
Thirdly, the investment craze in AI has played a role. Although tech companies have made substantial investments in AI, the market is somewhat concerned about whether these investments will yield actual returns.
Lastly, there is the issue of market trading structure. Over the past few years, the strong performance of tech giants and the semiconductor industry has led to highly consistent trading directions and position structures in the market, with cross-market arbitrage positions accumulating more and more.
2.Economic Outlook, AI Technology Development, and Overall Valuation of Tech Stocks
Regarding the current economic situation, most corporate earnings reports indicate that although growth has slowed, a soft landing is quite likely. Additionally, the current benchmark interest rate is significantly higher than before, providing room for policy adjustments.
As for AI, I believe that investments in computing power will continue in the short term, but in the long run, only achieving a commercial loop between upstream and downstream can sustain growth. Therefore, we need to closely monitor the development of some key events.
When it comes to valuations, the current price-to-earnings ratios of the S&P 500 and the SOX Index are 22.5 times and 29.4 times, respectively, significantly higher than the average levels of the past decade. However, this is mainly due to the influence of a few large companies.
Overall, although market volatility is high, we believe that the risks in the tech sector are still within a manageable range. Excluding those few large companies, the overall valuation of the sector is still reasonable. Coupled with the trend of continuous earnings growth, we remain optimistic about tech stocks for the next 6 to 12 months.
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luozn : nice article
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