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The year 2020 has been one fraught with volatility and uncertainty thanks to the backdrop of the pandemic. The markets have been more unpredictable than usual with some sectors hitting unthinkable lows, with other sectors proved to be more robust than perhaps many previously have been thought. Arguably, this has been down to the type of shock that the pandemic caused. It altered how the world did business and how large sections of the population acted throughout various lockdowns in ways no one could have predicted.
Obvious examples would be the oil and transport industries that were immediately impacted when their consumer base disappeared overnight. How those sectors and the stocks within them will recover in future will be interesting to see. However, one sector, in particular, did far better in the first half of 2020 than could ever have been believed - even for those already invested in them in the starting weeks of January.
That sector is, of course, the tech sector. Made up of big names like Facebook, Amazon and Google, housebound consumers used these giants to stay connected to the outside world when the Coronavirus forced everyone to stay home. So many technology stocks saw their stock price soar as a result and huge gains were made by investors that had already bought brands like Apple for their portfolios.
However, it hasn’t been smooth sailing even for this sector in 2020. In September, the sector saw a huge sell-off and big tech stocks had a turbulent few weeks. In fact, the sell off was so big that it impacted markets as a whole. Many finished far lower than they had started at the beginning of Autumn. So why was this?
Profit-taking could be one of the biggest reasons for the beginning of the sell-off. Prices at technology companies like Netflix, Tesla and Google were at historic highs. Plus, traders were probably rightfully worried that the market looked overbought. The path to those highs had been so quick that nerves could well have stepped in so that market sentiment was one that wanted to rebalance the sector. No one wanted to see a recurrence of the dot-com bubble bursting.
But other macroeconomic factors would have been at play in September’s sell-off. The unknowns surrounding the American election, and the impact that the result has on the relationship with China was looming. With so much exposure to the Chinese markets, many of these tech stocks are vulnerable to a relationship that could have worsened if Trump remained in power.
Finally, the long term impact of the virus restrictions has sent employment figures soaring in the US and elsewhere around the world. The US, especially, is a huge market for many of these stocks so the sell-off could have been a way of reflecting a potential weaker demand in future.
All that being said, these stocks made huge gains from their March lows and even where they started in 2020. The markets may have sought an adjustment in price as well as profit-taking, but these names were still a good purchase by savvy investors.
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