'History maybe doesn't repeat itself, but it does rhyme.'
Against the rising dollar, contractionary monetary policy, inflationary pressures and greater risk aversion, investors are not keen on tech stocks: on a year-to-date basis, Nasdaq Composite Index is down almost 30%. Unless headwinds subside, punitive selloffs might persist, especially in the case of pandemic-oriented companies.
The fact that companies like Meta have already started preparing the ground for layoffs suggests that the current financial crisis hasn’t bottomed out yet. The question then becomes, is a recession in the US inevitable? From the technical point of view, it has already taken place with GDP reading shrinking for two consecutive quarters.
According to Treasury Secretary Janet Yellen, on the other hand, the US economy is in a state of transition, not recession. Her statement is based on a strong job market and above-average personal consumption expenditures (increased by 0.4% in August after falling 0.2% in July). As policy tightens, this flow will be corrected.
No wonder, the average Big Tech company has seen consensus analyst earnings estimates for the third quarter fall 21.4% over the last 90 days, and projections for 2023 decline 11.3% on average. That compares with the S&P 500's 5.8% decline in third-quarter estimates and 3.1% drop in 2023 expectations during the same period.
Curiously, even with these downward revisions, some companies seem to be overvalued. Overall, the bearish sentiment for the tech stocks could persist unless the Fed's dot plot is revised. The bad news is that according to San Francisco Federal Reserve President Mary Daly, the US central bank is committed to curbing inflation with more interest rate hikes.
What is next?
Clearly, the sentiment is far from euphoric. The recent fall of Advanced Micro Devices (AMD), Nvidia (NVDA), and Intel (INTC) shares highlights how thin the market is on the sell side. For risk lovers, this could be a great opportunity to gamble. As for the rest, maybe it is time to switch sectors. Warren Buffett's Berkshire Hathaway, for example, bet on oil companies.
How about the Job Market?
Despite the fact that job openings in August unexpectedly plunged to the lowest level in more than a year, companies in the US still struggle to fill technology-related positions. According to the National Foundation for American Policy (NFAP), the number of job vacancy postings in computer occupations in America exceeds 804,000.
The data show over 326,000 job vacancy postings in the US for software developers, 64,712 postings for computer systems analysts, 57,307 for database administrators, 44,073 for information security analysts, 40,492 for electrical engineers and nearly 300,000 job vacancies in various other computer occupations.
Eventually, however, the rivalry among the candidates could intensify, which is why one should prepare for a thorough interview. According to the founder of the recruiting agency Unicorn Search, Daria Barkova, one in four (24%) candidates was rejected because they were introverts.
Recruiters fear that uncommunicative IT people could have some difficulties in the team. Of course, if you are Steve Wozniak, James Gosling, Linus Torvalds or Donald Knuth, this formality could be omitted... Jokes aside, there is a high probability that some companies might start to cut staff amid economic fears.