The Nasdaq 100 index of the world’s largest technology companies suffered a tough run in September, shedding 5.7 per cent in its biggest pullback since the coronavirus shock in March. But if the trading patterns of the past five years hold, it may not be long before the sector rebounds.
The latest decline came as a frenzied tech rally ran out of momentum, continuing a highly volatile year. Even after the drop in September, and a 7.7 per cent decline in March, the index is still up about 30 per cent in 2020.
Analysis from UBS shows that between 2015 and 2019, mid-cycle corrections in global tech stocks lasted an average of a month from peak to trough, and caused the sector to lose 11 per cent. The scale of the rebounds over the following six months was, on average, 20 per cent.
This year has been supersized. In 38 days to the end of March, tech stocks fell 31 per cent. Six months later, they were up more than 70 per cent from their lowest point. Applying the pattern to the Nasdaq, following its fall in September, the US tech index could hit new record highs by spring 2021.
Although the UBS analysis suggested the tech sector would recover in the coming months, the bank said choppy September trading “underlines the need for diversification”.
Investors with excess exposure to some of the most expensive US tech stocks should rebalance their portfolios to take advantage of the “upswing” that would soon come elsewhere, said Mark Haefele, chief investment officer at UBS Global Wealth Management. This included “tech enablers”, or companies exposed to trends such as cloud computing, Big Data and 5G.
Despite September’s stumble for tech shares, many investors remain bullish on the sector.
“Our fundamental view on the sector has not changed; we are positive on the tech sector . . . There has long been a structural shift towards digitisation and automation that we believe will continue if not accelerate thanks to Covid,” said Mary Nicola, portfolio manager at PineBridge Investments.