How Long will the Tech Rally Continue?

By Joyce Yu

Philadelphia, PA–Remaining largely intact from market turbulence in 2018, the tech sector might see its rally stalled by deepening trade tensions, according to investment bank Morgan Stanley who called to sell the tech sector and downgraded the sector to “underweight.”

Despite volatility in global markets, the Nasdaq has been enjoying a remarkable run by gaining 12% this year. Netflix has more than doubled and other tech companies like Adobe and Amazon are not far behind. In a recent report, Michael Wilson, Morgan Stanley’s chief US equity strategist, noted “These stocks have rarely, if ever, been so over-loved and over-owned,” warning that an emerging trade war will probably rain on the tech parade.

Calling the current market condition a “rolling bear market,” Wilson said isolated financial storms will hit various corners of the market. “Rolling bear markets aren’t over until they touch every last corner, with the highest-quality areas eventually taken out to the woodshed,” he wrote. “The risk of a proper rain storm in this zip code increases significantly” because of escalating trade tensions that could hurt corporate profits.

The Dow swung in wide ranges in the first half of 2018, plunging by 1,000 points twice. The volatility was due to a broad range of risk factors, from Inflation fears, to soaring crude oil prices, and to trade frictions. On the contrary, tech stocks, which fell after Facebook’s data scandal, have quickly recovered and remain resilient.

CNBC’s veteran investor Jim Cramer said Monday that there is “no particular reason” to explain the recent “breathtaking” rally in large-cap tech stocks. “There’s nothing new in Facebook to justify one more romp,” he said on “Squawk on the Street.” He favors tech stocks, particularly Facebook, Amazon, Netflix and Alphabet, which are “accidentally anti-Chinese stocks, and that is perfect for this market.”

Tech stocks, on the other hand, face their own set of challenges such as data privacy. Following Facebook’s data leak scandal, Twitter was reported to have suspended more than 70 million accounts in May and June to reduce the flow of misinformation. This resulted in 8% fall in Twitter’s stocks on Monday and the stocks have continued to slide today. On Tuesday, Apple and Google are also challenged by House Republicans over smartphone data privacy, but their stocks remain largely unaffected.


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