Contents
Why tech stocks are Down
The tech sector has been one of the worst hit areas in the stock market sell-off. Here’s a look at some of the reasons why.
Checkout this video:
The global economy is slowing down
Technology stocks are down because the global economy is slowing down. This is due to a number of factors including trade tensions, interest rates, and slowing growth in China. While the global economy is still growing, it is not growing as fast as it was in the past. This is bad news for tech stocks because they are generally more volatile than the overall market.
Economic growth in the US has slowed down
According to the most recent data, economic growth in the united states has slowed down. This is partly due to a decrease in consumer spending, as well as businesses investing less money in new projects. The trade war with China has also had a negative effect on the economy, as tariffs have led to higher prices for goods and uncertainty about the future.
This slowdown in growth is having a ripple effect across the world, as other countries that rely on trade with the US are seeing their own economies slow down. For example, Canada’s economy is expected to grow by 1.5% this year, compared to 2% last year. Mexico’s economy is expected to grow by 2%, compared to 2.5% last year.
The slowdown in the global economy is one of the reasons why tech stocks have been down recently. Many tech companies rely on international trade and could be negatively affected if the slowdown continues.
Economic growth in China has slowed down
China is the world’s second largest economy and a major driver of global growth. But growth in China has slowed in recent years, from an annual rate of around 10 percent in 2010 to 6.7 percent in 2016. And many analysts expect further slowing in the years ahead.
There are several reasons for China’s slowdown. One is that the country is trying to transition from an export-driven economy to one that relies more on domestic consumption. This has led to slower growth in manufacturing and construction.
Another reason is that China’s population is aging, which will lead to slower growth in the labor force and lower productivity.
Finally, China has been trying to rein in borrowing and prevent a build-up of debt, which has also weighed on growth.
The slowdown in China has had an impact on economies around the world, including the United States. Slower growth in China has led to lower demand for commodities like oil and copper, which has hurt countries that produce these items. And it has made Chinese products cheaper relative to other goods, putting pressure on companies in other countries that compete with Chinese firms.
Economic growth in Europe has slowed down
European growth has slowed down due to a number of factors, including the ongoing trade dispute between the US and China, Brexit uncertainty, and slowing demand in China. This has led to a decline in demand for European exports, and a corresponding decrease in economic activity. This slowdown has been compounded by a number of one-off factors, such as the yellow vests protests in France and a series of production disruptions caused by bad weather. As a result of these factors, Europe’s GDP growth is forecast to slow from 2.2% in 2018 to 1.5% in 2019.
This slowdown is having an impact on corporate profits, with earnings growth forecast to slow from 9.4% in 2018 to 5.5% in 2019. This is causing shares in European companies to fall, as investors are concerned about the potential for lower profits and slower growth. This is particularly true for tech stocks, which are more sensitive to changes in economic conditions than other sectors. As a result, tech stocks have been amongst the hardest hit by the slowdown in Europe, with the STOXX 600 Technology Index falling by around 20% since October 2018.
The trade war is weighing on corporate profits
Technology stocks have been some of the best performers this year, but they’ve come under pressure in recent weeks as the U.S.-China trade war escalates. The trade war is weighing on corporate profits and is raising costs for businesses that rely on Chinese-made components. The tariffs are also making it more difficult for U.S. companies to do business in China.
The trade war has led to higher tariffs
The trade war has led to higher tariffs on a number of imported goods, including tech products. This has led to higher prices for consumers and reduced profits for companies that rely on imported goods. In addition, the trade war has led to uncertainty and instability in financial markets, which has also weighed on corporate profits.
The trade war has led to lower exports
The trade war has led to lower exports for tech companies. In the second quarter of 2019, US exports fell by $1.3 billion, or 4.3%, to $29.6 billion. This is the largest drop in exports since 2015, when exports fell by $2.2 billion, or 6.8%. The drop in exports was driven by a decline in shipments of semiconductors and other electronic components, which fell by $1.1 billion, or 8%, to $13.4 billion. The drop in exports was also driven by a decline in shipments of computers and parts, which fell by $400 million, or 4%, to $9.5 billion.
The trade war has led to higher costs
The trade war has led to higher costs for many corporations, as tariffs have made imported goods more expensive. In addition, the trade war has led to uncertainty and decreased demand for some products, further weighing on profits. As a result of these factors, many companies have reduced their profit outlooks for the year, leading to a sell-off in the stock market.
The Fed is raising interest rates
The Federal Reserve plans to raise interest rates three times in 2018, which could cause tech stocks to drop. When rates go up, it becomes more expensive for companies to borrow money, and that could hurt their profits. Also, when rates go up, people tend to save more money instead of spending it. That could lead to lower sales for tech companies.
The Fed has raised interest rates three times in 2018
The Federal Reserve on Wednesday raised its benchmark interest rate for the third time this year and signaled that it plans to maintain a steadily climbing course in the years ahead.
The Fed’s rate-setting committee voted unanimously to raise the federal funds rate by a quarter-point to a range of 2 percent to 2.25 percent, extending a gradual but persistent tightening campaign that began in December 2015. The last time the Fed raised rates before this year was in June 2006.
“Our outlook for economic activity has strengthened in recent months,” Jerome H. Powell, the Fed’s chairman, said at a news conference after the decision was announced. “Most people who want jobs are finding them, and unemployment and underemployment are low.”
Inflation remains muted even as the economy approaches or exceeds full employment, one of the Fed’s mandates, Mr. Powell acknowledged. But he repeated his expectation that inflation would gradually move higher as the job market tightened further and wages began to increase more rapidly.
The Fed is expected to raise interest rates again in 2019
The Federal Reserve is widely expected to raise interest rates again in 2019, and that could be bad news for tech stocks.
Here’s why: When rates go up, it becomes more expensive for companies to borrow money. That’s particularly a problem for tech companies, which tend to have large amounts of debt.
In addition, higher rates can also lead to a stronger dollar, which makes US-based tech companies less competitive in global markets.
Tech stocks have already come under pressure in recent months on concerns about trade tensions and slowing global economic growth If interest rates go up next year as expected, that could add to those woes.
Earnings growth is slowing down
For the last few years, the Nasdaq has been on a tear, as tech stocks led the charge higher. But lately, there’s been a big shift taking place. The Nasdaq is down 9% from its highs, while the Dow and S&P 500 have only fallen 3%. So, what’s going on?
Earnings growth for S&P 500 companies is expected to slow down in 2019
There are a number of reasons why earnings growth is expected to slow down in 2019. One reason is that the corporate tax cuts that were enacted in 2017 are beginning to phase out. Another reason is that the trade war between the United States and China is beginning to take a toll on companies’ profits. Finally, interest rates are rising, which makes it more expensive for companies to borrow money.
Investors are worried about all of these factors, and as a result, they have been selling tech stocks. The sell-off has been particularly severe in the last few weeks, and it doesn’t seem like it is going to end anytime soon.
Earnings growth for tech companies is expected to slow down in 2019
One of the biggest reasons for the recent sell-off in tech stocks has been slowing earnings growth. For much of 2018, analysts were expecting strong double-digit earnings growth for tech companies in 2019. But now those estimates have been coming down, and earnings growth is expected to be more in the mid-single digits.
That may not seem like a big difference, but it can have a big impact on stock prices. That’s because when earnings grow faster than expectations, it can cause a “re-rating” of the stock, which means that investors are willing to pay more for each dollar of earnings. But when earnings growth slows down, it can lead to a “re-valuation” of the stock, which means that investors are willing to pay less for each dollar of earnings.
The slowing growth is being driven by a number of factors, including weaker demand from China, higher costs for labor and materials, and the strong US dollar. All of these factors are expected to weigh on tech companies’ profits in 2019.
Valuations are high
It’s no secret that tech stocks have been on a tear over the past few years. But now, it seems like the good times may be coming to an end. There are a few reasons for this, but the main one is that valuations are just too high.
The forward P/E ratio for the S&P 500 is at a 10-year high
The forward P/E ratio for the S&P 500 is at a 10-year high, according to Goldman Sachs.
This ratio, which measures how much investors are willing to pay for $1 of future earnings, is now at 18.1. The last time it was this high was in December 2004, when it reached 18.3.
Goldman’s equity strategists say the high P/E ratios are “unlikely to be sustainable” and that stocks are due for a “reversal of fortune.”
“We think the market is underestimating the risks to growth and corporate profits,” they wrote in a note to clients on Monday.
The forward P/E ratio for the tech sector is at a 5-year high
The forward price-to-earnings (P/E) ratio for the tech sector is currently trading at a five-year high. This means that investors are paying more for each dollar of earnings that a company is expected to generate in the future.
One reason why valuations are high is because the tech sector has been one of the best performing sectors in recent years. The strong performance of tech stocks has caused investors to bid up prices in order to own a piece of the action.
Another reason why valuations are high is because interest rates are low. Low interest rates make it cheaper for companies to borrow money and invest in growth projects. This can drive up stock prices as investors anticipate future earnings growth.
High valuations can be a problem for two reasons. First, it can be difficult for companies to live up to investor expectations when they are trading at such high levels. This can lead to disappointment and sharp sell-offs if earnings come in below expectations.
Second, high valuations can leave companies vulnerable to takeovers. When a company is trading at a high multiple, it becomes an attractive target for another company to buy them out at a premium. This can result in job losses and other cost-cutting measures as the new owner looks to improve profitability.
