Stock Market: Was The Labor Day Weekend Tech Meltdown Really Justified?

 (Drivebycuriosity) - On time for the Labor Day Weekend technology stocks suffered another sudden meltdown, one of so many in their history. Suddenly Apple, Amazon, Tesla and other former highflyers dropped 10% and more.

The were no news which could have been made responsible for the sudden drop. 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 sharp drop of the tech sector is unwarranted. The tech rally since March is based on strong fundamental factors. The technology sector, which has been already accelerating in the recent years, got an unprecedented boost from the corona crisis. In the year 2011 Marc Andreessen famously claimed that "software is eating the world" (a16z). He 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 technological development in the recent years and steeply climbing stock prices of software-focused companies give him right.

The rise of information technology - and the related stocks - accelerated since March this year because 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%. 

One day corona might be under control but I doubt that the recent changes will get reversed, because people learned the  many advantages of the information technology. Post Covid-19 the new normal will be more digitized and more efficient & productive which will be reflected by a strong rise of company earnings. I suppose that the accelerating digitization will spur economic growth in the coming years and fuel further stock market gains.