Author: Valery Zulia
The stock market crash of 2020 was a harsh reality for many people. While the Dow Jones and S&P 500 have recovered, some tech stocks have not. They’re still struggling to get back to where they were pre-crash. This is due to a few factors which have decimated the demand for many tech products.
Let’s discuss these factors and why tech could struggle to rebound from this year’s losses anytime soon.
The current market situation could mean trouble for tech companies for a number of reasons.
First, the overall market is down, which means that there is less money to go around.
Second, interest rates are rising, which makes it more expensive for companies to borrow money.
Third, the trade war with China is making it difficult for companies to source components and finished goods.
Finally, consumer confidence is down, which could lead to lower sales. All of these factors combined could make it difficult for tech companies to make back this year’s losses.
U.S. – China Trade Tensions
The main reasons for tech struggling to make back this year’s losses are the continued trade tensions between the U.S. and China, as well as the overall slowdown in global economic growth.
The U.S. – China trade war has led to a decrease in demand for tech products from China, and an increase in the cost of production for many tech companies.
In addition, the slowdown in global economic growth has led to a decrease in demand for tech products from businesses and consumers alike. These factors have all contributed to the struggles of the tech sector this year.
The Influence of Pandemic
The Covid-19 pandemic is another disaster that befell the global economy, and it negatively affected some tech stocks while a few benefited from it. That is another occurrence the global economy is still struggling to recover from. This has led to a decrease in demand for many tech products and services.
In addition, many companies have been forced to cut costs, which has led to layoffs and reductions in Research & Development expenditure(This money is spent on creative work to increase the stock of knowledge and the use of this knowledge to devise new applications). As a result of the reduction, it may take some time for the tech sector to return to its pre-pandemic levels of growth.
Valuations Issues
The valuations, which are being made more difficult by the rising risk-free rates, provide another difficulty for tech investors. Additionally, the P/E (price-to-earnings) ratio’s numerator has decreased while earnings for the S&P 500 (GSPC) remain steady at a little under $200 per share. Even stock valuations based on price-to-sales ratio don’t seem to be getting better.
Conclusion
If tech struggles to take back this year’s losses, it could have serious implications for the global economy. This is because tech is a key sector of the economy, and if it fails to recover, it could lead to a further slowdown in the overall economy. In addition, if consumers reduce their spending on tech products and services, this could disrupt the sector’s value.