The U.S. stock market is down this month, with investors bracing for a lot of volatility as the Federal Reserve starts tightening its monetary policy to fight against rampant inflation. The tech sector has immensely benefited from the liquidity injections issued over the past two years, which helped to leverage stock prices to record highs. But as policies are rolled back, several high-flying tech stocks have been sent straight to correction territory. As Deutsche Bank’s head of thematic research, Jim Reid, highlighted in a note published yesterday, this year has been “a perfect negative storm for tech,” with higher nominal and real yields as well as “a Fed that seems strongly committed to starting quantitative tightening”. Tech stocks are extremely sensitive to lower liquidity and rising rates, for that reason, many investor favorites have sharply declined over the past two weeks. On Wednesday, the Nasdaq fell almost 2%, with the FANG Index, which includes Big Tech names such as Apple, Microsoft, Google, Facebook, Nvidia, and Tesla, dropping roughly 5% in the afternoon trading. During the same time last year, the FANG Index jumped about 20%.
As the burst of the tech bubble becomes evident, more and more investors are acknowledging the growing risks and admitting that there is a broader stock market bubble. In a global market poll conducted by Deutsche Bank, 49% of the respondents affirmed that U.S. stocks are in a bubble. As investors move away from risky tech stocks, the Nasdaq officially entered correction territory, defined as a minimum 10% decline from its high. The latest peak in the index was recorded on November 19. After that point, things started to go downhill and never fully recovered. And yesterday, the tech-heavy index recorded a crash of nearly 11% below the record. But experts are saying that the downturn is about to get worse in the coming weeks as companies release their quarterly earnings data and investors are forced to confront the current economic reality. Even Nasdaq strategists are warning that a broad stock market crash is fast approaching. On Nasdaq’s official website, financial analyst Sean Williams cited several reasons why a stock market crash is likely to occur in January.
Everywhere we look, all signs point to an imminent financial disaster. Now, it seems that investors’ top priority is to get out of the tech bubble before they suffer from more painful losses. According to RBAdvisors’ Dan Suzuki, the risks of investing in tech stocks today are the highest they have ever been. Suzuki compared the frothiness in the sector to the dot-com bubble of the 1990s, saying: “It’s never too early to sell.” He believes that “any protracted sell-off in tech will reverberate across the broader equity market, given the weight tech stocks have in the major indices now compared to a decade ago”. “There’s massive downside risk. I’m talking about a bubble that reaches out at least 50% of the market,” he emphasized. “The only way to protect from a bubble is to get away from it,” Suzuki cautioned. “We’ve seen this movie before. These things don’t move in straight lines. I wouldn’t be surprised to see a major reversal here.”
“We haven’t really scratched the surface of what they’re really going to do to people’s portfolios,” he continued. Keeping in mind that millions of household portfolios are extremely exposed to these risky stocks, we’re about to witness some acute financial losses. And with soaring inflation and a looming stock market crash, it seems that Americans are already preparing for years of financial uncertainty. A recent Quicken survey shows that roughly 71% of the population inflation is among the top three issues they’re most worried about at the moment, followed by the new virus variant, supply chain disruptions, and a stock market crash.
“Americans are feeling the impact of inflation across their daily expenses, which is why it’s on everyone’s mind,” outlined Quicken CEO, Eric Dunn. “It’s important to understand exactly how economic changes, such as inflation and an unsteady stock market, impact our daily lives, and to have a handle on your personal finances so that you are prepared for the uncertainties ahead,” he alerted. Nearly 52% of Americans agree that a stock market crash seems near, amongst them, 58% think it will impact their finances negatively. In short, people can tell when dark times are approaching. And when the stock market finally implodes, we will find ourselves in the middle of the most devastating financial and economic crisis in modern history.
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