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Nicholas Kitonyi
Nicholas Kitonyi
Articles (192)  | Author's Website |

Is the Tech Bubble Finally Becoming a Reality?

Rate hike and tech stocks slowdown set up the market for a choppy period

The stock markets are on the spot following massive declines in tech stocks over the last few trading sessions. Most technology stocks including Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), Microsoft Corp. (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) have lost ground since Thursday last week thereby triggering debates on whether we are nearing the end of another tech bubble.

The declines have been so massive with the NASDAQ 100 pressured to shed a couple of percentage points while the other indices also lost points. This crash appears to have extended to the U.S. dollar, which edged lower on Tuesday paving the way for a spike in oil prices. But generally, the black gold has been very choppy over the last few weeks, and on Wednesday it dropped back below the $46 mark.

On the other hand, the U.S. dollar has started to feel the pressure over the last week dropping more than 50 points against the euro and more than 200 points against the British pound. The same trend is replicated against other leading currencies as per data obtained from various forex broker platforms.

And while the weakening of the U.S. dollar has been linked to this week’s Federal Reserve meeting coupled with positive electoral results in France and Italy, the rate at which investors have been pulling out their investments in tech stocks over the past few days could have weighed on the greenback.

Reuters reported that the continued selloff of tech stocks could be weighing on the market with both NASDAQ 100 and Standard & Poor's Technology Indices dropping points. This seems to suggest there is a tech bubble that is about to burst, and investors are now trying to take some profits to invest elsewhere.

Tech stocks have been among the best in the market for quite some time now with the likes of Alibaba (NYSE:BABA), Netflix (NASDAQ:NFLX) and Apple gaining at least 60% over the last 12 months before the recent decline.

As demonstrated in the chart above, Apple traded at a price of $93 per share in May last year and then rallied to trade at $155 before the most recent decline. This represented a gain of nearly 67% over the 12-month period.

On the other hand, Netflix rallied more than 77% over the same period after rising from $93 per share in May last year to $165 per share last week while Alibaba gained more than 90% after rallying from $74 per share to trade at about $142.

Some of the gains posted by these tech giants have been lost over the last few days but the overall picture indicates that investors who bought the shares in May last year are still in a strong position to make huge profits if they sold their shares today.

The question though remains whether the current selloff could ultimately bring to life what has so far been a fictitious tech bubble.

The Technology Select Sector IST has lost 1.23% in the process. On Thursday last week, it traded at 575.30 points while as of the close of the June 14 trading session, the index traded at 558.72 points. It is good to note that there were similar dips in May and April coming within a few days of the Federal Reserve Committee’s comments on the economy. This could be a macro thing.

Rate hikes are essentially good for capital goods because they increase the rate of return on interest payments. Recent rate hikes have triggered mixed reactions from investors rendering the dollar and the major U.S. stock indices volatile.

Conclusion

It appears we could be in for another choppy period in the stock market following another rate hike decision as various stock indices, the U.S. dollar and the price of oil continue to exhibit signs of volatility. Tech stocks appear to be leading in this perspective thereby prompting sentiments on a potential tech bubble. Only time will tell how real the tech bubble develops.

Disclosure: I have no position in any stock mentioned in this article.

About the author:

Nicholas Kitonyi
Nicholas is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on research sites like Seeking Alpha and Benzinga.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. As a trader, Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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