Tech stock rout or temporary blip? Top CEOs weigh in on what’s next for markets
On Friday, January 21, 2022, monitors displayed stock market information at Nasdaq MarketSite, New York.
Getty Images| Bloomberg | Getty Images
CNBC has heard from top CEOs and investors that the sell-off of global tech stocks is unlikely to spread into another market crisis.
Technology-intensive Nasdaq 100 index closed Monday’s trading down more than 26% year-to-date and earlier this month — after the Federal Reserve raised interest rates — the world’s largest technology companies shed over $1 trillion in valueIn just three trading sessions
As the Fed and major central banks worldwide look to control inflation, the Fed has made it clear that they will raise rates. Tech stocks and growth stocks are being hit particularly hard.
The sudden downturn for high-growth tech stocks – widely seen as overvalued at the market peak in late 2021 – has led some commentators to voice concerns about a tech-driven crash similar to that of the “dotcom bubble” bursting in 1999/2000.
“Clearly there is a question of what should the exact market value be of some of these models, but the underlying business models are true business models — not only now but for the future, in terms of delivering services, advice and what have you digitally,” UBSCNBC’s Ralph Hamers spoke Monday to CNBC during the World Economic Forum, Davos Switzerland.
It is supported by demographics, and driven by clients’ behavioral changes. Regardless of whether you are in financial or consumer services, I believe that technology-based business models that are digital are still the best because they work.
Some analysts suggest that sentiment towards the tech sector is at its worst point since the dotcom bubbleAs companies become more profitable, rising rates have highlighted the long-term potential for investors.
“It’s not the same 20 years ago.” [the dotcom bubble]. Hamers stated that some of the models were only models and weren’t really real. “The past 20 years have seen real shifts in retail, financial, etc. and this trend won’t stop because we can see it now.”
He echoed the sentiments of Credit SuisseCNBC spoke to Chairman Axel Lehmann Monday. He said that investors need a long-term outlook despite the temporary shakeout of tech stocks. However, many businesses in the sector are “solid” and “sound.”
Lehmann explained that “the valuation levels in all stock market have fallen, basically”, but that the profits of companies are still there, so there is a bit of shake-out that is occurring. He noted that there were some similarities to dotcom bubbles, however, that the fundamental trends are now more positive.
Although many businesses will probably go under, it is not likely that they will be affected by the core trends. [not] still remain, that technology and digitization will be important, new business models – these are the key themes that as business leaders, we all need to be very mindful of.”
An orderly sale
It U.S. Federal Reserve has said it will not hesitate to keep hiking interest ratesIt is important that inflation remains at a low level. The hawkish stance of the Fed in face global price rises has contributed to the exodus out of tech stocks.
However, the billionaire investor was also the co-founder and first CEO of a private equity firm. Carlyle GroupDavid Rubenstein declared Monday that the market had “overreacted” to the Fed’s attempts to manage expectations despite its efforts.
You had no revenue, no earnings, in the 1999-2000 and 2001 crashes. Some of them had no business plans, so they shouldn’t be going public.
Now, imagine a company such as NetflixThis company has more than 250 million subscribers. While it might not have the same value as it did a few months back, I believe it’s worth far more than what it’s trading at right now.
Rubenstein added that when markets “overreact” — as they have been — there is opportunity for investors to go in and “buy at the bottom.”
Netflix stock plunged 69% over the year. However, fellow tech giants have risen to almost equal levels. AmazonThis is down 35% more.
“Many of the companies that have seen their values drop recently are still excellent companies. The market may be reacting too quickly to the loss.” While I believe there are many great buys, it doesn’t seem like the market is reacting to where it was in 1999/2000.
Citigroup CEO Jane Fraser stated Monday at Davos, despite sharp falls so far in this year’s market, that investors have been responding to the sale-off in the U.S. from a Wall Street perspective.
“They haven’t rushed to the door in the same way as they did during the financial crisis and were not there when the crash occurred, nor are we at 2020.” Fraser explained that we have witnessed a very systematic reduction and modification in asset allocation.
She explained that fixed-income issuances in corporates and sovereigns were “fairly constructive”, and market indicators indicate that the downturn was likely to have been a necessary correction rather than a mass crash.
“There isn’t so much strain yet – we’ve seen some in commodities, we’ve seen a bit in high yield – but this hasn’t been the catastrophe it could have been,” she concluded.
High growth, high disappointment
According to Maurice Levy (chairman of the board of French advertising giant), valuations are falling because of the rapid rate of profit growth over the past few years. Publicis Groupe. He stated that the earnings season had been set too high by the companies.
It is a sector that has grown by 30 to 50%, and when it is growing at 25% to 15% or less you get disappointment. The stock then sinks. CNBC’s Levy stated that we shouldn’t use this sector as a gauge because tech expectations are very high.
We need to remain calm and take a long view when looking at these numbers. At the moment the numbers seem to be quite good if one looks at the telecoms and all of the advertising companies,