After the meldown, the tech-bottom signal still couldn’t scream ‘buy now’

(Bloomberg) – With $ 5.5 trillion wiped out, the downturn in the technology downturn is not easy, but there are some signs of optimism for investors.

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Tech stocks have been hit this year by a perfect storm of negative catalysts, rising interest rates, slowing economic growth and rising inflation. This has hit everyone from retail investors who loaded up to Kathy Wood’s Arc Investment Exchange-traded fund last year to deep-pocketed asset managers who have invested in Apple Inc.

The price charts paint a grim picture: the tech-heavy Nasdaq 100 index is limited to the seventh week of its fall, the longest such trend since 2011, and has fallen nearly 30% from last year’s high. Apple, Microsoft Corp., Amazon.com Inc. And Alphabet Inc.’s US trillion-dollar quartet has reduced charges in the latest phase of the sale.

Yet many investors are beginning to see a light at the end of the tunnel. The Nasdaq 100 now trades at about 20 times its estimated forward earnings – in-line with the long-term average – as a foamy assessment made during an epidemic. The home of chipmakers, including the Philadelphia Semiconductor Index, Intel Corporation and ASML Holding NV, traded up nearly 15 times expected earnings for the next 12 months, well below the 24-hit peak in early 2021.

“It is difficult to be patient when there is so much carnage. But the pain should end, probably soon, “said Jordan Stewart, client portfolio manager at Federated Hermes. “Our recommendation is that growth investors be prepared.”

Last week, Jefferies strategists were bullish on the IT sector, saying in a note that investors’ “dash for cash” discounts in extreme interest rate situations “reflected more than the contraction of market multipliers.”

Wells Fargo Securities says it is stopping its negative outlook on growth names as bearish sentiment has hit extremes in the near term. Indeed, the number of companies trading above their 200-day moving average was last seen in early 2020, with Bank of America Corporation’s popular measure of investor sentiment calling it a “vague contrast”. Buy area. “

For Kevin Mahn, who runs Henion and Walsh Asset Management, cash-rich Apple and Microsoft will recover over time because “most of the damage is done” and some good opportunities are being created in technology.

He cautioned about the timing of a rebound, however, the market has yet to show signs of surrender. “I’m certainly not going to make a bottom call, and I’m sure there will be more bouts to sell in the future,” he said.

The New Paradigm

Like Mahn, many investors are torn between prices that now look more attractive and the reality that the outlook for the world economy remains highly uncertain.

Maria Elena Lagomasino, Chief Executive Officer of the WE Family Office, said: “Markets are becoming accustomed to the fact that the driver who drove this fantastic investment environment for the last 10 years will no longer be there. Interview on Bloomberg TV. Without favorable conditions such as low inflation and rates, “the market is now trying to figure out what the new paradigm will look like.”

In terms of market position, there has already been an exit. A recent BofA survey showed that fund managers have the lowest allocations in the sector since August 2006, in “very small” technology.

The alternative market is also pointing to a possible rally. The da 157 billion Invesco QQQ Series 1 ETF options track Nasdaq 100 index shows a put-to-call ratio based on open contracts that have recently reached their lowest level in two years. Outstanding calls have risen sharply since 2008. A decline in the put-call ratio is usually a bullish sign that investors are preparing to move upwards.

Bottom fishing in China

There is also support from abroad. Another turbulent week for Chinese Internet stock technology has emerged as an unexpectedly bright spot, thanks to repeated pledges to support the beating group from Beijing and lower interest rates on long-term loans. It helped boost the index by 4.7% on an index of 81 U.S.-listed Chinese stocks last week.

The Nasdaq Golden Dragon China Index, which has historically been positively correlated with the Nasdaq 100, is once again testing its 50-day moving average, a key technical hurdle that has consistently failed to rise above this year. This time may be different after the index surpassed the Nasdaq 100 last week, and the benchmark remained above its lows in March, a positive technical signal.

Of course, the recent disappointing economic data, weaker-than-expected earnings from Tencent Holdings Limited, and the persistence of China’s Covid Zero strategy, have to be taken with a grain of salt. Nevertheless, speculation of further economic stimulus is emerging from Beijing.

Jason Hu, chief investment officer at Rayliant Global Advisors Ltd, said: . It is not ‘if’, but ‘when’.

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