Wednesday, April 9, 2014

Financial Comment - Tech pull-back

Tech’s pull-back

The American stock market has been filled with the talk about possible correction for several weeks now. On the broad market these fears have not materialized yet as the S&P 500 index over the past month has been flat (down about 2% year to date). At the same time, the technology-heavy index NASDAQ Composite over the past month has lost almost 7%. The decline has been concentrated in the recent period, as NASDAQ lost almost 5% over April 2 - April 7, 2014.

High beta technology companies have led the decline of the NASDAQ: Facebook, Yahoo, Tesla and Google are some familiar names that have pulled back after running up very strongly from January. These ‘star stocks’ are trading at high P/E ratios, but expectations are that their earnings growth will also be high in the future. On Monday, Mark Mobius, an emerging markets fund manager at Franklin Templeton Investments, called some technology stocks’ valuations reasonable and said that he was buying them after the latest correction (as per Bloomberg News).

The stock market participants are closely watching whether the tech stocks’ decline will spill over to the wider market. The wide-market index S&P 500 dropped by 2.3% over Friday and Monday. The talk of the market currently is that the two most important factors influencing American stocks this week will be company earnings reports and situation in Ukraine. The situation in Ukraine, in particular, is hanging in fragile balance between government’s taking control of buildings, which are seized by militants in a few Eastern cities, and further escalation of Putin-inspired separatism. The global markets are all too aware that the latter scenario could bring unease to regional and global economies.

By: Ukrainian Credit Union Limited

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