At first glance, it would appear as though tech stocks were rebounding after an unexpectedly tumultuous summer. While Nasdaq enjoyed its second consecutive week of growth and completed a 25% rise year-on-year, however, this is thought to be a large cap phenomenon that has left small cap ventures and Chinese Internet companies behind.
This means that while investors may be assuming that the recent recovery has a relatively broad base, the facts remain that the majority of tech stocks continue to trade in a relatively low and narrow range.
In this post, we’ll look back at a turbulent year for tech stocks and ask why they’ve fluctuated so significantly over the course of the last 12 months.
How Tech Stocks Tumbled During the Summer
While tech stocks were a little subdued during the first two quarters of 2018, it was in July that they began to free-fall.
At this time, the tech-heavy Nasdaq posted its biggest three-day loss in three months, while Oanda reported that both Facebook and Amazon missed analysts’ key targets for the second financial quarter. Social media giants Facebook also saw a staggering $120 billion wiped off its market value during this time, finishing 2.1 lower at the end of the month.
Fellow tech leaders Alphabet and even Amazon also saw significant losses in July, with their share values declining by 1.8% and 2% respectively.
The takeaway here is the unexpected decline of so-called FANG stocks, which include the world’s market-leading and highest performance tech companies. Facebook, in particular, was besieged by a disappointing second-quarter report and a significant decline in its rate of new subscribers, which appeared to be indicative of exhaustion and saturation at the highest end of the market.
What Trends are Now Governing the Market?
While FANG stocks may have suffered the most pronounced losses during the summer and blazed a trail for smaller tech companies to follow, it’s interesting to note that these large-cap brands have enjoyed a far greater recovery at the start of the fourth financial quarter.
But why should large-cap stocks have rebounded while smaller-cap entities continue to struggle? The answer may lie in the market’s shift towards value stocks with a relative upside, which typically trades at a lower price relative to their fundamentals.
While this would typically not include large-cap stocks, the conditions of the market have forced the value of companies like Facebook down. Despite this, these companies retain long-term value and sustained growth potential, making them increasingly desirable to investors in search of a relative upside.
This has helped FANG stocks to recover considerably from their summer decline, while these entities can boast impressive growth over the course of 2018. In fact, Netflix is up by more than 77% despite its recent fluctuations, with Amazon showcasing a 54% year-to-date gain.
It should be hoped that this also aids the recovery of small-cap stocks in the market, leading to a bright and prosperous future in the near-term.