Nasdaq 100, the tech-dominated index, is down by almost 30% year-to-date (YTD), while some of the high-flying tech stocks such as Meta (Facebook) are down by a whopping 72% YTD. Even other technology and communication stocks are not unspared. Rising interest rates and the impact on earnings are being cited as the reasons for the big fall of the ‘‘Big Five’ technology companies in the US.
A low-interest rate environment is favorable for stock valuations. This is because the future earnings of the companies get discounted at a lower rate of interest which helps in boosting their valuations. On the contrary, the future cash flow is discounted at a higher rate when interest rates are higher and future discounted valuations are likewise lower. Since the beginning of 2022, the valuations of stocks especially from the technology sector have dwindled. Fed has already hiked rates by 300 basis points in 2022 and more hikes are yet to come.
The leading tech companies may not take time to shore up their balance sheet. They are known to have a robust business model and can bounce back as macroeconomic factors change. “US corporate earnings have broadly fared better than expected. While Meta and some of the other tech companies’ earnings were disappointing, it is very early to say that degrowth will begin,” says Viram Shah, Co-founder & CEO, Vested Finance, a FINRA-registered US broker-dealer and an investment platform that enables Indian investors to invest in the US markets.
For retail investors, staying invested for the long term is a better approach. Given their solid financial standing and consistent cash flows, mega-cap stocks may present an opportunity for some investors. These businesses may be better able to weather the storm since they have enough capital to endure market changes.
“If we talk about the investor’s preference, they are still interested in tech companies. The top 25 most transacted companies on the Vested platform are still tech heavy. The top 9 stocks bought on Vested over the last 30 days are all tech stocks,” informs Shah. This trend has been spotted on their platform post the tech giants announced the earnings. Apple, Amazon, Meta, Google, and Microsoft have recently announced their Q3 earnings.
Indian Investors using Vested Finance’s platform – The investing trends
Despite a not so good earnings reports by some of the technology companies, net buying (buy-sell) volume has remained constant.
Average weekly buying volume per user has remained constant.
Some of the stocks have witnessed an increase in buying post the results. But on a week-over-week or month-over-month basis, the trend remained constant.
Investors continue to invest in tech-based stocks, especially megacaps and largecaps.
Megacap stocks have been experiencing higher-than-average volatility in recent times. Lower earnings growth and a tightening of Fed rates could mean they may expect more pain in the short term.
No major buy or sell trend spotted for Meta stocks even after the prices went down post-earnings announcement