Stocks in big tech companies have had a forgettable year. Among the factors that have hit them are the increase in interest rates, which increase the appetite for less risky instruments, and the problems in the supply chain, mainly in semiconductors for telephones, computers and cars.
So far this year, the Nasdaq technology index has fallen 32%, a performance worse than that of the Dow Jones and the S&P 500, which are down 17.9 and 23.5%, respectively. Among the companies in the sector that have shown the greatest decreases are Netflix, with 61.4%; Meta (Facebook), with 61.3%; Tesla, with 37.1%; Amazon, with 32.5%; Alphabet, with 31.1%; and Apple, with 19.5%.
The storm that technology companies are going through on the stock market did not develop overnight, it comes from a long time ago: During the pandemic, the shares of these companies became more expensive, due to the extraordinary liquidity and stimulus measures of the banks centers, which meant that people received additional resources (in the US, for example, aid checks were given).
One of the alternatives that people chose was to generate returns with that money. And they turned to the stock market looking for attractive stocks in sectors like e-commerce and platforms that had an added incentive.
These companies incorporated expectations of exponential growth, so they raised their share prices in a context of interest rates that remained at historical lows and with greater liquidity in the market. But the party did not last long, little by little factors such as a slow economic recovery, problems in the supply chain and the reaction of central banks to the increase in inflation were sapping the market sentiment.
The beginning of the interest rate increase in March brought with it a fall in the financial markets, since an interest rate of more than 3% meant an increase in the cost of corporate debt, which in turn decreased its net present value.
“This increase in prices, or this rise in expectations, brought by technology companies makes the reaction, at the time of a correction, greater,” said Mario Copca, manager of the Stock Market at Casa de Bolsa BASE.
Eduardo Ramos, analyst for ATFX Latam, indicated that during the last decade low interest rates were used to inject capital into these firms, and now with high interest rates, investors are forced to invest in government bonds because of the yields in the short term that they are obtained.
Another explanation given by a specialist, who asked not to be quoted, is that technology companies carry out valuation methods to define the target price. If you have a 10-year US bond going up, the value at which you discount and value companies is higher, and in the end it has a negative impact on the target prices of these stocks.
Is it convenient to invest in these actions?
“Obviously when there are strong falls in the markets, there are always interesting opportunities to be able to buy in the long term and hope to see the assets grow. However, we are a few days away from the start of the quarterly reporting season and although the low prices suggest being able to take advantage of the discounts, we must be very careful, mainly with risk management,” said the ATFX analyst.
The high inflation season in the medium term also affects companies and it is expected that the quarterly reports of the companies can show a broader picture on the impact of the rises in interest rates and inflation, which could raise whether to buy or take advantage of low valuations to investors.
Mario Copca reiterated that if general inflation begins to subside (three consecutive months of decline in the US) and the forecast is maintained that there will be one or two increases of 75 base points in the interest rate of the Federal Reserve, the rates will be would stand at 4.5%, so further decreases could be seen in the sector.
“The market will start to discount and then I would consider that it is not the lowest moment that we are seeing (in the markets) at the moment. We could be looking for that turning point in a medium-term horizon, which would imply that participation in very particular assets that could have a good valuation and give rise to an increase in greater exposure would be sought,” added the Banco Base specialist.
