Tags: tech | stocks | expensive | valuation

Are Tech Stocks Still Trendy?

By    |   Tuesday, 08 April 2014 12:01 PM

Shares of companies such as Facebook, LinkedIn and Twitter saw sharp declines last week, raising questions of whether social media stocks are in a bear market.

A lot of the momentum in social media stocks was driven by hedge funds. Part of the current weakness could be related to calls for those firms to exercise more caution, noted Yahoo Finance’s Michael Santoli during a segment with colleague Jeff Macke.

Social media stocks were “hedge fund favorites and deleveraging could be contributing to the recent price declines. There's some chatter that the brokerage firms that serve the hedge funds have called on them to calm it down a bit," said Santoli.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

He also notes that last year valuations didn't matter. Part of the appeal of tech stocks was that they kept going up despite the opposing crowd saying they're too expensive.

So, it was the cool thing to do on the way up, which will make it uncool on the way down, he added.

People like to avoid using the word “bubble” said Macke, but there's also a psychological element to this sell-off.

At some point these things just become embarrassing to buy, he said.

The “silliness” in the market may serve as an indicator of who is doing the buying, Santoli notes. Last week you had a lot of reminders that the “smart money” wasn't really aggressively buying here, he said.

“The market, I think, has to kind of find its foot in some other areas before these things become the obvious bet again,” he added.

Those other areas are likely to be something “mundane,” like utilities, according to an article by CNN Money's Jesse Solomon.

It's not just social media stocks. All areas of tech are taking a hit, from Tesla to Netflix, he reported. In fact, areas that were “sexy” and “sizzling” last year, including biotech, have lost their appeal as investors get more conservative.

As we enter first-quarter earnings season investors are concerned about the sky-high valuations and they are switching strategies, says Solomon. Momentum isn't as trendy as it used to be. Now money appears to be migrating to defensive plays, like dividend stocks.

“While there is a lot of promise there, we think some stock prices outran any kind of semblance of reality,” Jim Russell, senior equities strategist for U.S. Bank Wealth Management, told CNN Money.

“Investors are flocking to what is known as opposed to what is promised,” he added.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

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Shares of companies such as Facebook, LinkedIn and Twitter saw sharp declines last week, raising questions of whether social media stocks are in a bear market.
tech,stocks,expensive,valuation
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2014-01-08
Tuesday, 08 April 2014 12:01 PM
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