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Tech stocks – is the correction over?

We look at the tech sector and see whether the bullish trend remains intact. 

Source: Bloomberg

For all the excitement about the great correction of early 2018, it should come as no surprise that the tech sector, the big performer of the past nine years, has clocked up a fresh all-time high in early March.

From a low of 6200 in early February, the Nasdaq 100 (US Tech 100 on the IG platform), stormed back to its previous high of 7033, and then surged to create a new record at 7186. So, yes, the tech correction is over. But there is more to it than this. The speed of the recovery is also worth noting. Having suffered its worst loss since the beginning of 2016, it only took a month for the market to recover completely. The index is up around 8% for 2018, an already remarkable return. But there is probably more to come.

The famous trader Jesse Livermore noted that, in a bull market, it makes sense to buy the strongest performer. This is really a form of momentum trading – find the winners, and stick with them. Compared to European markets, which essentially have gone nowhere for a year or more, the Nasdaq’s performance marks it out as one of the winners, if not the winner, of the current bull market.

There is a fundamental basis to the tech index’s outperformance too, showing that this is not just built on euphoria and ‘fear of missing out’. By the beginning of March, most of the tech stocks within the S&P 500 had reported. Total earnings were up by nearly a quarter, while revenues were up 11%. Further gains are expected for both earnings and revenues in 2018.

So, the fundamentals are there, while the technical breakout to new all-time highs provides another attraction. Much has been made of the anniversary of the nine-year ‘bull market’ this month, but there looks to be more to come for tech stocks, which have finally lived up to the hype of 1999.

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