over 3 years ago • 2 mins
With tech stocks sliding 10% in just a few days, led by losses in household names like Tesla and Apple, some investors have warned of a repeat of the dotcom bust of 20 years ago. But Invesco, a US fund manager overseeing more than $1 trillion, isn’t buying it…
In a report on Tuesday, Invesco made a strong argument that – despite recent weakness – the future for tech stocks is still rosy.
For a start, there’s the support from the Federal Reserve’s incredibly low interest rates – which were over 6% when stock markets peaked 20 years ago and are currently just 0.1%. This cuts the returns investors can get from holding safe assets like US government bonds and makes riskier investments like stocks more appealing.
‘This is a very different monetary policy environment than what we saw in 2000 when the tech bubble burst,” according to Invesco.
Add to this five societal trends that are helping fuel tech-based businesses: people spending more time at home thanks to the coronavirus pandemic; ecommerce companies benefiting from the accelerating shift to online shopping; artificial intelligence driving business efficiency; COVID encouraging the increased use of robots and drones; and the fear that cash can spread disease boosting the adoption of cashless payments.
And, finally, there’s the hope that improving coronavirus treatments will reduce the pandemic’s impact. Invesco doesn’t think a vaccine will be tested and distributed in the US until next summer, but is still optimistic about steroid-based treatments that are cutting the number of people who die from COVID.
The tech bust that started in March 2000 was brutal – wiping out more than three quarters of the value of stocks in the Nasdaq Composite Index 😱 So, naturally, anyone with money in the stock market would get burned badly if history were to repeat.
Still, Invesco isn’t alone in finding reasons to be positive on tech. Capital Economics sees few signs of excessive investor bullishness in the recent trading of options – derivatives that allow the holder to purchase shares at a certain price on a certain future date. While demand for bullish call options has lately outstripped that for bearish put options in certain big tech names – like Tesla – when it comes to broad market indexes, investors are still seeking the safety of puts.
“In contrast to the dotcom era, investors are fairly downbeat about almost everything outside of big tech,” Capital Economics said. “Investors’ primary concern has been protecting themselves against broad-based weakness, the opposite of the caution-to-the-wind behaviour you might expect to see in a bubble.”
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