Back to school: When the tech bubble hisses

The stocks that had recently led the market’s march upward are the ones that have fallen the most since 03 September. Zoom has fallen by 9.23%, Tesla by 16.99%, Apple by 13.63%, Microsoft by 11.34%, Alphabet-Google by 11.14%, Netflix by 13.05%, Twitter by 10.81%, Amazon by 10.09%, Facebook by 11.38%. Interestingly, two other recent good performers have diverged: Bitcoin has fallen by 9.26%, while gold has gone up 0.92%. With a loss of only 4.90%, the equally weighted S&P 500 has fallen less than the S&P 500 (6.75%).

All this points to a tech-led sell-off. Actually, some of the stocks just mentioned peaked earlier than the market as a whole: Tesla peaked on 31 August and has lost 25.48% since then. Apple, Netflix and Zoom peaked on 02 September.

These companies are as good and promising today as they were yesterday or the day before yesterday. No specific bad news, announced or anticipated on 03 September, can justify the correction. participants in asset markets are prone to inflate bubbles even when they have perfect information about the intrinsic value of the assets they are trading .  Why does this happen? Because investing is a competition in which market participants are trying to second-guess each other. Like it or not, there is nothing Mark Zuckerberg, Jeff Bezos, Jack Dorsey, Reed Hastings, Sundar Pichai, Bill Gates, Tim Cook or even Elon Musk can do about this source of uncertainty. That means that what a market participant thinks about a given stock matters less, at least in the short run, than what Mr. and Mrs. Consensus think about it. Unless and until a market participant knows what Mr. and Mrs. Consensus have already priced in, she doesn’t know what she should know before investing.


Eric Barthalon
Allianz SE