Tech Stocks: Going Nowhere but UP UP UP

It's March 2020, you’ve just gotten home for spring break, and you get the news: the rest of the semester will be online for Wesleyan University. You’re immediately devastated - no Spring Fling, no WesFest, and none of your favorite spring activities, like sitting on Foss. Many of your friends from home are still at college — how could Wesleyan have jumped the gun? They didn’t.

In December 2019, Coronavirus felt like a universe away. On December 21st, 2019, many cases of unknown pneumonia were reported in Wuhan China (Taylor, 2020). On January 20, 2020, the first case in the United States was reported in Washington State. From there, things spiraled until Trump declared a national emergency on March 13th, 2020 (Taylor, 2020). Cases began to skyrocket, and restrictions such as stay-at-home orders were put into place. There have been about 8.03 million cases (387,000 in the last week as of 10/18/20) and about 218,000 deaths in the United States (CDC, 2020). This has taken a huge toll on every aspect of life. 

The NASDAQ dropped from 9817.18 to 6860.87  in the span of 33 days (February 18- March 22 ) (Yahoo Finance, 2020). For reference, in the 2008-2009 financial crisis the NASDAQ fell from 2,530.82 to 1,284.84 (May 19th 2008-March 3rd 2009). This makes sense; as people could not go to work and stores could not open, people lost trust in firms and the market. Any firm with in-person operations or sales suffered. Ever since the first initial drop, there have been ups and downs, but ultimately the market climbed back to where it was and then even beyond that in the following six months, with the NASDAQ reaching 12,056 on September 1st (Yahoo Finance, 2020) . In September, there has been some volatility, dipping back to 10,963 on September 19th , but as of October, it has been climbing back up (Yahoo Finance, 2020).

When thinking about technology, though, things are different. While technology firms have in-person operations to make technology and sell it, they can also profit from peoples’ increased use of technology. In a pandemic where basically no one can go outside, technology is often a safe bet for investors; the technology industry will survive and may even thrive when people spend less time outside because people will increasingly turn to technology for entertainment. Looking at the NASDAQ 100 Technology Sector Index, it initially mirrors the NASDAQ, with a drop from 5907.67 to 4030 (February 13 - March 19)  (Yahoo Finance, 2020).  Again, over the course of months, it slowly climbed back and above to 6651.30 on August 30th  (Yahoo Finance, 2020). Once again, volatility in September caused it to fall back to 6119.78 on September 22nd. Ever since, it has slowly been climbing back to pre-pandemic points. However, leading firms like Apple show particularly interesting trends. Their stock price dropped as expected from $79.75 to $56.09 from February 17th-March 22nd (Yahoo Finance AAPL, 2020). But instead of climbing back slowly to where they were before, stock prices boomed, reaching a high of $134.18 on August 31st. They faced extreme volatility in September, dropping to $107.12 on September 22nd, but this still outperformed pre-COVID-19 numbers (Yahoo Finance AAPL, 2020).

So, how do the tech sector and market move together? Why did the tech sector rebound so much stronger and quicker? What was this recent volatility about, and what does the future look like for the tech sector?

Apple, Amazon, Alphabet, Microsoft, and Facebook make up 20% of the stock market’s worth, with Apple being the biggest contributor. Starting in March, daily visits to Facebook went up 15% (Mackintosh, 2020). Amazon Web Services cover almost every activity we do online, from working over Slack to relaxing by watching Netflix, as major businesses run through Amazon Web Services (Mackintosh, 2020). While these numbers led to spikes in stock prices for these companies, the overall market only saw a steady climb back up from the initial drop. This is because most other businesses — the other 80% of the market — did not get to benefit from the technologically advantageous situation of increased time on technology and inability to choose otherwise. So, while the market overall and the tech sector moved together on the rebound, the tech sector greatly outperformed, and possibly played a large part in dragging the market back up even as the pandemic raged on.

The cause of the recent September volatility has interesting sources. There are many possible sources, such as general election cycle volatility. Both Trump and Biden seem to have a similar stance on big tech: Trump and Biden believe they should maintain or increase antitrust scrutiny (Swartz, 2020). While Trump’s agenda is focused on liberal bias on social media, Biden is more focused on privacy and anti-competitive practices, meaning a Democratic win (which the polls seem to indicate at the moment) could be more damaging to the tech sector (Swartz, 2020). General pandemic volatility, resulting from  the stalling of several promising vaccines, is another possible explanation (Taylor, 2020). 

Looking forward, on the horizon for the tech sector is 5G. With 5G, downloads, uploads, quality, gaming, and network congestion will all improve rapidly (Higgins, 2020). Beyond individual users, businesses can greatly benefit from 5G in anything from medical uses (images) to designing factories (Higgins, 2020). Faster connections and networks are desirable for any individual or business. Apple in particular is pushing 5G into the present, with their upcoming iPhone 12 with 5G. Apple shares have risen by 69% over 2020, mostly due to the iPhone 12 with 5G capabilities (Higgins, 2020). As technology and networks improve, it shows a bright future for the tech sector where investors can feel secure with no sign of innovation plateau. 

So, the market is heavily influenced by the tech sector, which has boomed under pandemic restrictions and only recently faced heavy volatility in the market. In the short term, there is no doubt more political and pandemic volatility approaching both the market and tech sector. However, looking ahead to the long-term, the rebound and success of the tech market under these pandemic conditions shows promise that the tech sector will be a reliable and profitable bet for investors going forward. New technology, like 5G, shows that tech firms have not slowed down, and will continue to have new ideas that boost their profits, the tech sector, and the market as a whole.

Sources

Taylor, Derrick Bryson. “A Timeline of the Coronavirus Pandemic.” The New York Times, The New York Times, 13 Feb. 2020, www.nytimes.com/article/coronavirus-timeline.html. 

“CDC COVID Data Tracker.” Centers for Disease Control and Prevention, Centers for Disease Control and Prevention, covid.cdc.gov/covid-data-tracker/. 

“S&P 500 INDEX (^SPX) Historical Data.” Yahoo! Finance, Yahoo!, 30 Oct. 2020, finance.yahoo.com/quote/^SPX/history/. 

“Apple Inc. (AAPL) Stock Price, News, Quote & History.” Yahoo! Finance, Yahoo!, 28 Oct. 2020, finance.yahoo.com/quote/AAPL?p=AAPL. 

Mackintosh, James. “Call It a Bubble, Call It Excess. Here's What to Watch If Tech Goes Pop.” The Wall Street Journal, Dow Jones & Company, 13 Sept. 2020, www.wsj.com/articles/call-it-a-bubble-call-it-excess-heres-what-to-watch-if-tech-goes-pop-11600002001?st=whyqishwaqerih3. 

Swartz, Jon. “Here's Where Biden and Trump Stand on Antitrust, Social Media and Other Tech Issues.” MarketWatch, MarketWatch, 1 Oct. 2020, www.marketwatch.com/story/heres-where-biden-and-trump-stand-on-antitrust-social-media-and-other-tech-issues-2020-10-01. 

Higgins, Tim. “Apple Reveals Four IPhone 12 Models, Heralding 'New Era' for 5G Technology.” The Wall Street Journal, Dow Jones & Company, 13 Oct. 2020, www.wsj.com/articles/apple-event-iphone-12-expected-with-5g-capabilities-11602581403?st=z6mep4nbkhgulhg.