Tech stocks have been on a wild ride in 2018. Prices surged higher into the Q4 but hit a wall and have since traded under pressure. Some of the high flyers like Facebook, Apple and Amazon are now trading in bear market territory. The question for investors is – whether the carnage is over. The answer is based on several factors including volatility as well as global growth.
Tech Shares Were Hammered in Q4
Some of the best performing stocks were hammered during the Q4 of 2018. Both Apple shares and Amazon shares hit levels that pushed the value of their companies above 1-trillion US dollars. But following Q3 earning results, investors began to take profits, especially after Apple announced that it would no longer give guidance on how many phones they plan to sell. While this makes it more difficult to gauge revenues, it also provides a level of insecurity, as many believe that the reason Apple no longer wants to provide guidance is that they fear sales are beginning to trend lower.
Trade and Interest Rates are working against Stock Prices
Tech share trading is also experiencing volatility that is generating headwinds for the broader markets. The US trade spat with China and rising interest rates are making stock prices less attractive. While the Fed continues to project that they will increase interest rates multiple times in 2019, the markets seem to believe rates will rise by a lower amount. US trade issues with China are also generating volatility and are putting downward pressure on stock sentiment.
An economic downturn may now be on the horizon. Trade tensions are a continued source of concern for economists. China has already experienced plenty of economic pain and so have many farmers in the United States. While the jobs data is robust, job increases usually come at the end of an economic cycle.
What are the Catalysts for Higher Tech Share Prices?
What you should look for is a signal that the Fed is on the right path. The Fed might be more likely to provide a signal to investors at their December 19 meeting. Trade is another story. President Trump is attempting to change the way the Chinese do business. They believe that to enhance intellectual property, any company that does business in China needs to share it with the country. They can then socialize the intellectual property and make it less expensive and more readily available. This is the core issue for the US. Any agreement that does not focus on intellectual property is likely to be shot down.
The March 1, Deadline
Tech Share prices will likely continue to experience volatility during early 2019. If China and the US can form a trade pact as the deadline approaches, stock prices should be able to rebound. If larger tariffs are placed on China by the US, tech shares could experience a volatile bumpy ride during most of 2019.