Tech Volatility
The S&P 500 and Nasdaq Composite have now lost 4.8% and 7.2%, respectively, over the past two weeks. The former, whose top components by market cap include Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL), was impacted by the volatility and sell-off that has been occurring in those names.
In the below chart you can see how those stocks’ respective performances tracked alongside that of the S&P’s (S&P is light blue, Apple is gray, Microsoft is green, Amazon is canary, Facebook is navy and Alphabet is red). This shows how much impact their prices have on the overall level of the broader index.
S&P + Top Components Within Past Two Weeks (Source: Yahoo Finance)
Further, in the below chart, you can see how much the rest of the non-tech S&P components have dragged on the index year-to-date.
S&P + Top Components YTD (Source: Yahoo Finance)
The YTD “winners” are Amazon, followed by Apple, as investors poured into businesses that stood to benefit from the work-from-home economy. Now, however, with an increasing amount of uncertainty stemming from the upcoming election, US-China relations, and the ongoing pandemic, it appears investors are growing restless and increasingly wary about the outsized valuations of the apparent “best-performing” stocks.
Tesla stock, which was notably absent from the S&P Dow Jones Indices’ inclusion list, did not take that news lightly.
Tesla Stock Performance Past Two Weeks (Source: Yahoo Finance)
Tesla shares have officially entered bear territory (a decline of over 20%), having dropped from $501 to $372, a 25.7% decrease
The run-up in tech names is due to a variety of factors, including the implied belief that they stand to benefit from work-from-home trends and thus have more room to grow. But now it seems investors are beginning to ask - how much growth is left, particularly in asset prices that have already seen such a meteoric rise. It has also been fueled by speculative activity like the kind Softbank was engaging in, in which they purchased around $50 billion worth of options in individual tech stocks. The people on the other side of those trades purchase the underlying assets to hedge the transaction, pushing the prices of those assets still further.
Although not a very scientific or quantitative conclusion, all of this to me seems like reckless behavior, thus making tech an unattractive investment area for the time being. That being said, if there are any more significant leg-downs in these or other names with promising long-term trajectories, then it would behoove one to take advantage of those buying opportunities.