In the last few weeks we’ve seen a massive shift in the stock market on the back of rising long-term bond yields. Investors have offloaded ‘Big Tech’ stocks such as Apple and Amazon and moved money into cyclical/reopening stocks such as banks, airlines, and energy companies. Yesterday, the move was particularly noticeable with the Nasdaq 100 index (which contains all the major US tech stocks) falling close to a big 2.9%.
So, what’s the best move for growth investors like myself now? Should I dump my Big Tech stocks and should I be buying more?
Nasdaq tech stocks: where to from here?
In the short term, I wouldn’t be surprised to see Nasdaq tech stocks underperform.
We’ve seen this kind of shift in the stock market before. Earlier this year, 10-year US Treasury yields spiked up to around 1.75% on the back of optimism over the economic recovery. This resulted in a massive shift out of the technology sector (higher rates reduce the value of these companies’ future earnings) and into cyclical stocks.
Big Tech stocks such as Apple and Amazon were hit hard. Between late January and early March, Apple’s share price fell from around $145 to $116 – a decline of about 20%. Similarly, between early February and early March, Amazon’s share price fell from around $3,400 to $2,880 – a decline of around 15%.
US Treasury yields dipped between May and August and this saw money flow back into the technology sector. However, yields are now rising again (at quite a fast speed). In recent weeks, the 10-year yield has spiked from around 1.3% to 1.5%. If yields were to rise up to 1.75% again (or above) on the back of recovery optimism, Nasdaq tech stocks would most likely struggle.
I’m getting ready to buy
I’m not too concerned if Nasdaq stocks underperform in the short term, however. I actually hope they do continue to pull back as I want to buy more of such stocks (mainly Big Tech) for my long-term portfolio. I’ve said before that these are the kind of stocks I’m building my portfolio around.
In my view, the likes of Apple, Amazon, Microsoft, and Alphabet (Google) are likely to grow significantly over the next decade. As industries such as cloud computing, e-commerce, video gaming, electronic payments, and artificial intelligence continue to grow, these companies should see their revenues and profits climb higher. So, I want to have plenty of exposure in my portfolio. If I can buy such new-economy stocks when they’re ‘on sale’, I’ll get more for my money.
Right now, I’m watching the share price declines across the Nasdaq with interest. I’m tempted to start buying now as many of these stocks trade at what I think are reasonable valuations. However, I’m going to be patient. I think the shift out of Big Tech and into cyclicals could have a little further to run. After all, Apple and Amazon are only down about 10% and 7% respectively in this latest market move, which is less than last time.
If we see a few more big down days like yesterday, however, I will most likely step in and buy. Because sooner or later, Big Tech Nasdaq stocks are likely to continue climbing higher, in my view.
