Tech’s Decade of Stock-Market Dominance Ends, For Now
Sector’s tumble is worst since 2002; value investors take victory lap.
Sector’s tumble is worst since 2002; value investors take victory lap.
Big technology stocks are in the midst of their biggest rout in more than a decade. Some investors, haunted by the 2000 dot-com bust, are bracing for bigger losses ahead.
The S&P 500’s information-technology sector has dropped 20% in 2022 through Wednesday, its worst start to a year since 2002. Its gap with the broader S&P 500, which is down 14%, is the largest since 2004. The declines have prompted investors to yank a record US$7.6 billion this year from technology-focused mutual and exchange-traded funds through April, according to Morningstar Direct data going back to 1993.
For years, shares of tech companies propelled the stock market higher, pushing major indexes to dozens of records. Excitement for everything from cloud-computing to software and social media drove an epic runup in far-reaching corners of the market. More recently, the Federal Reserve’s accommodative policies at the start of the Covid-19 pandemic fueled a seemingly insatiable appetite for risky bets.
This year, investors are faced with a starkly different environment. Treasury yields have jumped to the highest level since 2018 while bond prices have fallen. Many of the trends that flourished over the past two years—including bullish options trades, special-purpose acquisition companies and cryptocurrencies—have made a sharp U-turn. Only the energy and utilities sectors of the S&P 500 have gained.
Some investors say the decadelong era of tech dominance in markets is coming to an end. Value investors, who buy stocks that are cheap on measures such as earnings or book value, are taking a victory lap after a long-awaited resurgence in shares of companies such as Exxon Mobil Corp., Coca-Cola Co. and Altria Group Inc.
The S&P 500 Value index is outperforming the S&P 500 Growth index—which includes companies such as Tesla Inc., Nvidia Corp. and Meta Platforms Inc.—by 17 percentage points, its widest margin since 2000. Meanwhile, more than US$48 billion has left funds tracking growth stocks, according to data provider EPFR, while investors have poured more than US$13 billion into funds tracking value stocks.
“It is really a change in market regime,” said Chris Covington, head of investments at AJO Vista. “It would be hard for me to believe that you would have the extreme outperformance of growth that you saw in the last five years.”
To many investors, the bets against tech and the monthslong turmoil in the market echo the dot-com bubble of 2000, when the frenzy surrounding companies that later went bust caused losses for investors big and small. Then, the allure of technological innovation combined with low interest rates spurred a rush into Internet stocks. When the bubble burst, the Nasdaq Composite tumbled almost 80% between March 2000 and October 2002.
This year, individual tech stocks have recorded some of their sharpest-ever falls, with hundreds of billions of dollars in market value evaporating—sometimes within hours. In late May, Snap Inc. shares lost 43% in a single session, their largest one-day percentage decline ever and a loss of roughlyUS $16 billion in market value. Once highflying bets such as fintech company Affirm Holdings Inc. and Coinbase Global Inc. have lost more than half of their values in 2022.
The industry’s biggest companies haven’t been spared. Shares of the popular FAANG stocks—Facebook parent Meta Platforms, Amazon.com Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc.—have all suffered double-digit percentage declines this year that are steeper than the S&P 500’s.
After the punishing start to the year, many investors are speculating what area of the market will be next to tumble.
“When bubbles break, they don’t just tend to fall to fair value—they have a tendency to go to the other side,” said Ben Inker, co-head of asset allocation at Boston money manager GMO.
Mr. Inker, who has been betting against growth stocks with extended valuations for more than a year, said the extra premium at which growth stocks are trading relative to value stocks is standing above historic levels.
Even after the selloff, technology stocks still make up a near-record 27% of the broad S&P 500, hovering near the highest levels since the dot-com bubble, Bank of America strategists wrote on May 27. The firm cautioned it was too early to buy the dip in many of the stocks.
Of course, some investors point to important differences between the current era and the dot-com bust. Although tech-stock valuations soared in recent years, they haven’t approached the levels seen in March 2000 when forward multiples on the S&P 500 touched 26.2. At their peak in September 2020, the forward price/earnings ratio, based on earnings expectations for the next year, hit 24.08, according to FactSet.
Treasury yields, meanwhile, have risen in recent months, but remain well below historical levels. Today, the 10-year Treasury yield is hovering around 3%. In 2000, it was roughly 5%.
To be sure, it’s early yet in the Fed’s rate-hiking cycle. Investors expect the central bank to keep raising interest rates this year. That means yields will likely keep rising, potentially putting further pressure on tech and other growth stocks. Rising yields make the future cash flows of companies less attractive.
If rates keep rising, “the stock market is going to have to move a good deal lower as well,” Mr. Inker said. “It really does depend on where interest rates are going to wind up.”
Worries about how high and how fast the Fed will raise rates have spurred debate about whether the economy is headed toward a recession, though recent economic data don’t point to one in the near term.
Many investors have been betting against tech stocks or closing out bearish positions. Of the S&P 500’s 11 sectors, tech is on track for the biggest drop in short interest in the second quarter, according to S3 Partners, though it remains the market’s most shorted sector. Traders are still betting heavily against Tesla, Apple, Microsoft Corp. and Amazon, making them among the most shorted stocks, just as they were in each of the previous two years.
Still, some investors and analysts remain confident that tech’s dominance isn’t over just yet.
The ratio of bearish put options to call options on the Technology Select Sector SPDR Fund, or XLK, has been elevated, a contrarian signal that suggests the worst may be over for the sector, according to Jay Kaeppel, an analyst at Sundial Capital Research.
“We discovered that things just don’t go straight up,” said David Eiswert, a portfolio manager at T.Rowe Price. “You can’t just buy a basket of tech stocks. You have to differentiate.” Mr. Eiswert said he thinks some tech stocks, such as Amazon, look attractive after their recent declines and that he may increase his exposure to the group.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: June 8, 2022.
Early indications from several big regional real-estate boards suggest March was overall another down month.
Art can transform more than just walls—it shapes mood, evokes memory, and elevates the everyday. Discover how thoughtfully curated interiors can become living expressions of personal meaning and refined luxury, from sculptural furniture to bespoke murals.
For self-employed Australians, navigating the mortgage market can be complex—especially when income documentation doesn’t fit the standard mould. In this guide, Stephen Andrianakos, Director of Red Door Financial Group, outlines eight flexible loan structures designed to support business owners, freelancers, and entrepreneurs.
1. Full-Doc Loan
A full-doc loan is the most straightforward and competitive option for self-employed borrowers with up-to-date tax returns and financials. Lenders assess two years of tax returns, assessment notices, and business financials. This type of loan offers high borrowing capacity, access to features like offset accounts and redraw facilities, and fixed and variable rate choices.
2. Low-Doc Loan
Low-doc loans are designed for borrowers who can’t provide the usual financial documentation, such as those in start-up mode or recently expanded businesses. Instead of full tax returns, lenders accept alternatives like profit and loss statements or accountant’s declarations. While rates may be slightly higher, these loans make finance accessible where banks might otherwise decline.
3. Standard Variable Rate Loan
A standard variable loan moves with the market and offers flexibility in repayments, extra contributions, and redraw options. It’s ideal for borrowers who want to manage repayments actively or pay off their loans faster when income permits. With access to over 40 lenders, brokers can help match borrowers with a variable product suited to their financial strategy.
4. Fixed Rate Loan
A fixed-rate loan offers repayment certainty over a set term—typically one to five years. It’s popular with borrowers seeking predictability, especially in volatile rate environments. While fixed loans offer fewer flexible features, their stability can be valuable for budgeting and cash flow planning.
5. Split Loan
A split loan combines fixed and variable portions, giving borrowers the security of a fixed rate on part of the loan and the flexibility of a variable rate on the other. This structure benefits self-employed clients with irregular income, allowing them to lock in part of their repayment while keeping some funds accessible.
6. Construction Loan
Construction loans release funds in stages aligned with the building process, from the initial slab to completion. These loans suit clients building a new home or undertaking major renovations. Most lenders offer interest-only repayments during construction, switching to principal-and-interest after the build. Managing timelines and approvals is key to a smooth experience.
7. Interest-Only Loan
Interest-only loans allow borrowers to pay just the interest portion of the loan for a set period, preserving cash flow. This structure is often used during growth phases in business or for investment purposes. After the interest-only period, the loan typically converts to principal-and-interest repayments.
8. Offset Home Loan
An offset home loan links your savings account to your mortgage, reducing the interest charged on the loan. For self-employed borrowers with fluctuating income, it’s a valuable tool for managing cash flow while still reducing interest and accelerating loan repayment. The funds remain accessible, offering both flexibility and efficiency.
Red Door Financial Group is a Melbourne-based brokerage firm that offers personalised financial solutions for residential, commercial, and business lending.
Renovations in Yorkshire included the revamp of a 30-room wing where a descendant of the estate’s builder still lives.
The Italian marque has revealed its second High-Performance Electrified Vehicle, the 920CV Lamborghini Temerario, at a spectacular Sydney launch.