The Nasdaq closed just below 5,000 on March 24, 2000. By October 17 of the following year, it traded at 1,867. It traded just shy of 2,600 on November 23, 2007. A year later, it traded below 1,400. The first decline was due to a huge overvaluation of tech companies. The other was triggered by the Great Recession.
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Has another dive begun? Late last year, the Nasdaq was at nearly 16,000. Today, it trades near 11,000. If it resets down 50%, it still has a long way to go.
And it could go that long way down. Late 2022 has started to look like both 2001 and 2008. On the one hand, we are headed into a recession. It will not be as bad as the last one. However, consumer spending will dip, earnings will tighten and unemployment will rise back above 5%.
Furthermore, analysts increasingly believe that tech stocks are overpriced. One reason is that they rose so far so fast. Another is that this rise was helped because it happened exclusively since the Great Recession. Tech stocks may not be “recession-proof,” particularly at already inflated values.
One argument the market analysts make is that not all tech stocks will drop at nearly the same rate. Apple may not reset down more than 30%. It is already over 20% off its peak. It is too early to say whether an economic contraction will hurt the demand for iPhones.
The other class of tech stocks could drop 80% to 90%. Some already have begun. Cryptocurrency train wreck MicroStrategy has declined well over 60% this year. The retreat in cryptocurrencies is not over. Neither is the drop in MicroStrategy’s stock. Moving to the unrelated electric car industry, Lordstown Motors has fallen from $11.80 a share to $1.63. The company may not stay in business.
The tech carnage from cars to crypto is well underway. Rising interest rate market corrections will help drag these companies down as much as their own financials will.
The Nasdaq rally is over. What remains are forecasts about how bad it will get.
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