Tech stocks are facing challenges despite their capacity for long-term gains. The second week of October had a great start but the market then lost momentum. Technology stocks are among the main contributors for that dip. Consider using advanced trading platforms to get a clear picture of the markets during times like this for better decision making when trading.
The Setback for the Tech Sector
This loss of momentum for tech stocks is partially due to the news that Democrats plan to break up the big tech companies. This news was reported by Bloomberg News, Reuters, Politico as well as MarketWatch. Robert Buckland though, who leads the group of Citigroup strategists, is against abandoning tech stocks. Buckland and his team believe that though valuations of tech stocks appear expensive, the sector could outperform if there are EPS (earnings per share) downgrades witnessed in other sectors.
All Is Not Lost for Tech Stocks
The Citigroup strategists believe that cyclical stocks are quite vulnerable to cuts in the EPS. They believe that these cuts could happen in just a few months and that consensus estimates are quite high which could hamper the recovery of the economy if a second bout of Covid-19 infections strikes. Lower rates could benefit the IT sector.
Buckland observes that tech stocks did outperform the market in 2019 when real yields dropped and the Fed slashed interest rates. The outperformance was also noted in March when the yields kept falling and the equities dropped along with the growth expectations. Quantitative easing has also contributed to nominal yields being held low.
How Apple’s Move Has Affected Prominent Tech Stocks
Meanwhile, Sonos ($SONO) and Logitech ($LOGN) saw their shares fall after Apple ($AAPL) stopped selling their products. Apple’s retail stores are also removing audio products from third parties since the company is launching its own high-end audio products, particularly wireless over-the-ear headphones.
Apple was selling the Ultimate Ears speakers by Logitech, but it is no longer being marketed. Products by Sonos and Bose are not available anymore on its website. Apple is instead focusing on its own AirPods as well as products by its Beats subsidiary. Apple has confirmed that these third-party products are no longer on sale. As a result, Sonos stock fell by over 3% in early trading on Tuesday, October 6. Logitech, listed in Switzerland, fell the sharpest in the Stoxx 600 index.
Despite the temporary setbacks to the tech sector, the industry has significant long-term growth potential owing to the practical solutions it offers for the problems people face personally and professionally. Experts believe the industry will get over them eventually and grow significantly in the long term, so make the most of commission free trading to improve your trading strategy and fulfill your investing goals.
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