When Tech Stocks Go down, So Does the Entire Stock Market
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfil their religious and moral obligations towards charitable activities)
The stock market adores high-growth tech companies — until it suddenly doesn’t. And when the mood changes, as it has this year, the brutality of the stock market goes on spectacular display.
Consider what has happened to Meta, the company formerly known as Facebook, the archetypal social network. Its earnings have shriveled, and it has begun laying off workers. Worth $1 trillion only a year ago, the company has lost nearly three-quarters of its stock market value. Meta’s problems are idiosyncratic, yet they are also a cautionary tale, one with application to investing in just about all tech companies in an era of raging inflation, rising interest rates and plunging asset prices.
Investments that looked splendid when cash was cheap have lost much of their allure. The Federal Reserve isn’t merely raising interest rates. It now promises to hold them at high levels for a long while — making a recession more likely.
As long as these austere conditions persist, the stock market is likely to have far less appetite than it did just a year ago for entrepreneurial visions with long incubation periods. Investors have turned against Meta, but a very broad range of tech companies, including Apple, Amazon, Alphabet (Google’s parent company), Microsoft, Netflix, Uber and Nvidia, has also been subjected to market punishment, of varying severity.
Everybody with broad stock market holdings owns tech stocks, and those accounted for most of the market’s gains last year. But now, tech-stock declines have pulled down the overall market. The information technology sector alone — which includes Apple, Alphabet, Microsoft and Nvidia — accounted for 44 percent of the decline of the entire S&P 500 this year through October. But that understates tech’s negative impact on the market this year.
Meta, Alphabet and Netflix are classified in the S&P 500 as communications services stocks; Amazon, Uber and Tesla are in the consumer discretionary category. Each is unique, but in common parlance, they are all tech stocks, and when you include everything that fits under this expansive rubric, you will have enumerated nearly all of the stock market’s losses.
The market’s punitive mood won’t last forever. Companies with solid earnings and strong prospects for growth will be rewarded with higher stock prices down the road, so I wouldn’t abandon investments in tech companies just because they have been hammered lately. I own shares in all of them through low-cost index funds that mirror the entire stock market and intend to keep doing so.
But because we don’t know when the tide will turn or which particular stocks will prosper, buying shares that have declined sharply in the expectation that they will soon rise isn’t prudent. You could easily be hurt.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
