Stocktake: Technology stocks take a beating

Allocations to technology stocks have fallen to lowest levels in 13 years

Richard Bernstein Advisors (RBA) warned the Nasdaq could suffer a 50 per cent decline in 2022. Photograph: iStock

Richard Bernstein Advisors (RBA) warned the Nasdaq could suffer a 50 per cent decline in 2022. Photograph: iStock

 

Technology stocks have endured an awful start to 2022. The Nasdaq is down more than 10 per cent since November’s peak, falling below its 200-day moving average for the first time since April 2020. Most of that damage has occurred recently, with the index suffering its fourth-worst start to a year in history.

The signs were there, says All Star Charts’ Willie Delwiche. More Nasdaq stocks were making new lows than new highs at November’s peak, notes Delwiche. Since then, 90 per cent of trading days have seen more lows than new highs.

Roughly four in 10 Nasdaq stocks have already halved in price. That’s remarkably high – typically, only one in eight stocks have fallen that much when the Nasdaq is within 10 per cent of its peak, says Ned Davis Research.

Still, there’s nothing inherently bearish about a bad start to a year. Similarly, double-digit corrections are not bad omens. Six and 12 months later, stocks have gained two-thirds of the time, according to Bespoke Investment, although median returns are smaller than normal.

Still, investors remain wary. Bank of America’s latest fund manager survey shows allocations to technology stocks have fallen to their lowest levels since December 2008.

Last week, Richard Bernstein Advisors (RBA) warned the Nasdaq could suffer a 50 per cent decline in 2022. RBA thinks tech stocks are in bubble territory and they’re not alone. According to a global poll conducted by Deutsche Bank, almost half – 49 per cent – of respondents think US tech stocks are in a bubble.

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