(Drivebycuriosity) - Technology stocks are suffering another sudden meltdown, one of so many in their history. The media found a culprit for the rout - a "whale". The journalists of the Wall Street Journal and other media outlets refer to Softbank, a giant Japanese investment conglomerate (cnn). According to the media the Japanese "whale" caused the recent rally in tech stocks by purchasing options on tech stocks in the value of $50 billion dollar. If we believe the journalists the immense mass of options pushed tech stocks to record highs and these push is now tapering off. Apparently some big players used the huge gains since March as an invitation to take some money from the table. As usual many fund managers and others followed. Professional portfolio managers, including administrators of large funds, usually act as a herd. When their bros are selling they are selling too which amplifies the stock market movements.
The big whale theory is unfounded. The recent tech rally is based on fundamental factors. Tech stocks have been climbing since 2008 driven by a phenomena known as "software is eating the world" (a16z). Marc Andreessen described the rapid advance of information technology, meaning combinations of computers, smartphones, Internet and other digital systems which have been making businesses and our daily life more efficient, productive and convenient.
The fundamental drivers for the tech rally accelerated since March this year because of the corona crisis. Internet - and other software applications - are helping everyone to deal with lockdowns and social distancing. Microsoft`s CEO Satya Nadella said that “two years of digital transformation took place in two months” ( microsoft ). The Ceo of Bill.com, an online service, said: "We believe the ongoing pandemic has accelerated the need for businesses to focus on digital transformation” (seekingalpha).
The Covid Pandemic changed many habits. The crisis forces many people to work, learn, shop, educate & entertain from home which is fostering digitization and raising efficiency & productivity of the economy ( driveby ). Online sales worldwide are surging, more people are working from home, they are binge watching Netflix & Amazon Prime, listening via Spotify, reading Kindle books, surfing Facebook & Twitter and businesses are running more & more on cloud computing. Not only consumers are changing, corporations adapt as well. We are witnessing an accelerated shift toward digital technologies that are faster, less expensive, more productive and raise creativity. Many Internet companies reported jumping earnings & revenues and Amazon`s sales growth accelerated to 40% and Zoom, an Internet video company, is growing about 200% annually.
It is unlikely that corporations & consumers will return to their old behavior when the corona crisis is over. The advantages of the information sector are too big and they are growing fast, eating more of the world. People love e-commerce, Internet entertainment & communication and companies need more & more information technology to be competitive in a swiftly changing world. These fundamentals were - and will be - reflected in the rally. I am convinced that the tech rally will resume soon and the players will come back - wale or not.
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