Will the momentum experienced by tech stocks during lockdown continue now that restrictions are beginning to be relaxed? Giles Coghlan, chief currency analyst, HYCM, believes these stocks could benefit from long-term changes in consumer behaviour forged during the crisis.
As the UK sets about its plans to ease lockdown restrictions, there is finally a sense that we could be witnessing the beginning of the end of the pandemic.
Cases have fallen sharply in the opening months of 2021, while the vaccine rollout has moved ahead at pace, with over 50% of the UK’s population now having COVID-19 antibodies. In recent weeks, schools, pubs, restaurants and shops have been able to re-open their doors, which is in turn having an impact on the financial markets.
Up until now, in response to stay-at-home orders, individuals have been more dependent on technology than ever before. In the face of such a surge in demand for digital services from consumers and businesses, many investors have pumped staggering amounts into global equities, with tech stocks in particular continuing their impressive run since March.
While many organisations have struggled to survive under global lockdowns, the largest technology firms remain in a position of relative strength. Unsurprisingly, the so-called FAANGs stocks – Facebook, Amazon, Apple, Netflix and Google (Alphabet) – have significantly outperformed broader market indices; they are all trading at (or close to) their all-time highs. More broadly, the S&P 500 Index is 22% up on its pre-pandemic levels.
Naturally, however, investors and traders are beginning to consider what the world will look like without COVID-19. As the economy begins to open up once more, and individuals become less reliant on technology in their daily lives as a result, this has sparked debate as to how long this bullish momentum in tech stocks will last.
Will tech stocks keep momentum?
It is difficult to say with any great certainty how long this boost to tech stocks will last, but for now, the sector looks set to continue its reign of relative dominance. This is best evidenced by the performance of the US high tech market; the Nasdaq is an astounding 42% higher than its pre-pandemic level, which even at the time marked a record high.
For the companies and asset classes that thrived under previous lockdowns, a setback in the roll-out of the Johnson & Johnson vaccine in the US has also proven profitable, prompting a further boost.
None of this, however, means that the major tech companies are immune from the usual seasonal patterns – the arrival of the summer months could put a halt to the upward trend. The old stock trading adage, “sell in May and go away”, which is based on the historical tendency for the stock market to produce below average returns in the summer months, might once again ring true for investors.
Likewise, should the UK roadmap out of lockdown remain on course, with the majority of restrictions set to be lifted by mid-June, individuals will no doubt rely on technology to a much lesser degree. In turn, this could reduce the value of tech stocks. However, I would argue that life after the coronavirus pandemic will be markedly different to what we knew before, and the FAANGs could benefit from long-term changes in consumer behaviour forged during the crisis.
Social media platforms are gaining new audiences, people are spending more time on their smartphones and shoppers are getting accustomed to ordering all manner of goods online. These changes in digital consumption trends could all prove permanent, something that investors and traders must bear in mind.
The rise and rise of cryptocurrencies
Another trend that investors should monitor is the booming cryptocurrency market. In recent months, this trend has created a media storm, with Bitcoin alone valued at a staggering $1.2 trillion.
Again, the big question is how long will these gains continue? At the moment, the cryptocurrency market seems to be going from strength to strength, aside from the odd sharp fall, as exchange platform Coinbase recently went public on the Nasdaq, making it the first ever firm specialising in cryptocurrencies to a launch an initial public offering (IPO). This is a particularly notable event, and investors would do well to keep abreast of new developments.
No doubt, headlines around cryptocurrencies will remain in sharp focus for the foreseeable, with further developments likely on the cards for investors to keep on top of.
Cryptocurrencies are not available for trading under HYCM (Europe) Ltd and its backer Henyep Capital Markets (UK) Ltd.
