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Three days, down over 10%. With the tech-heavy Nasdaq having posted its fastest retreat from a high into a correction this week, investors in the high-flying tech stocks may well be thinking: What now?
Well, right back up it seems.
The Nasdaq closed 2.7% higher on Wednesday, while the S&P 500 and Dow posted similar rebounds, up 2% and 1.6% respectively.
If one thing is clear, the recent pullback was a flashing warning sign: tech had gotten too overheated, too fast. And valuations for some of the top names (think: Apple, Amazon, Microsoft, Alphabet, Tesla) had become extreme.
Indeed, Randy Frederick, Charles Schwab’s vice president of trading and derivatives, argues the latest tech correction can largely be chalked up to, “without a doubt, the fact that things had gotten very, very expensive.”
But that doesn’t mean those like Frederick think investors have become disenchanted with the pricey group of stocks. Even with the Nasdaq’s latest correction, the benchmark only shed roughly a month’s worth of gains, Frederick points out, and is still up over 60% from March. “That is not anything to be panicked about, it’s just reality that when things go for the moonshot, they’re going to come back down to earth at some point,” he says. “That does make things more affordable, [and] I think tech still has room to run.”
To wit, buyers appeared eager to jump back into tech names Wednesday. And historically, the returns for the Nasdaq following a rapid correction are mostly positive six to 12 months out.
Still, the big argument against tech stocks in recent months (that they’ve gotten far too expensive without the true fundamental growth to back them up) remains formidable. But others like LPL Financial’s Jeff Buchbinder actually believe tech stocks are “probably fairly valued overall.” Part of that argument is that the growthy tech stocks are well-positioned in this environment (read: work from home), and that “this recovery has exceeded our expectations, the earnings rebound has exceeded our expectations, and we think stocks including tech should end the year higher than where it is right now,” Buchbinder tells Fortune.
However, Schwab’s Frederick cautions it’s only been one day of a bounce, and he always recommends waiting for two “up” days in the markets following a selloff to jump back in. But “frankly, now [the tech stocks are] all more affordable than they were, of course they’re going to be even more attractive than they were four, five days ago,” he argues.
Meanwhile, Chris Zaccarelli, chief investment officer at Independent Advisor Alliances, wrote in a note Wednesday that “as long as the buy-the-dips mentality remains foremost in investors’ minds—and it will unless they are severely punished for it—then the bull market is likely to continue.”
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