Nasdaq in a bear market as the tech tide turns

The Nasdaq’s drop into bear-market territory marks even tougher times for local technology stocks.

The Nasdaq index has now entered ’bear’ territory with a 20 per cent-plus fall. Picture: East 2 West News

The war in Ukraine has made a bad situation worse for technology stocks: the Nasdaq index has now entered “bear” territory with a 20 per cent-plus fall – a move that places Australia’s listed tech stocks even further from favour.

In fact Australia’s version of Nasdaq – the ASX All Technology Index – is now so out of favour that it has dropped three times more than the wider market since the start of the year. The ASX 200 is down around 8 per cent since the start of January but the All Tech index is down around 26 per cent.

Along with locally listed tech stocks, the majority of investors on the nation’s active international trading platforms at brokers such as CommSec and nabtrade are also deep into US tech stocks. At CommSec, four of the top five traded overseas shares are tech: Apple, (Meta) Facebook, Microsoft and (Alphabet) Google, though electric vehicle empire Tesla remains the most popular of all.

Seasoned tech stock investors expect rollercoaster cycles, but this is something different: It is a very deep sell-off suggesting the factors pushing against tech stocks are not about to change anytime soon.

One thing is for sure, those cycles are accelerating, the tech index went through a major sell-off just after its launch in 2020, only to recoup all losses and power ahead through the depths of Covid when an exceptional amount of commercial activity moved online for the first time.

Now, the tide has turned. Higher interest rates, rising inflation, an aversion to profitless growth and a swing to old school “value” stocks such as miners and oil majors weigh heavily against the sector.

In the US, technology investors are worried the key stocks that underpinned the run up last year may not be able to mount a turnaround.

Superstar technology fund ARK Invest led by high-profile fund manager Cathie Wood was a global sector talisman during that period. The listed fund (which is also popular with Australian investors) made 38 per cent per annum for five years in a row. Unfortunately for new arrivals the share price of the flagship ARK fund is now less than half it was in July last year.

In fact, every single one of the 36 stocks in the ARK portfolio are in decline. Some of those stocks such as Block (the new owner of Afterpay), online retailer Shopify, online real estate group Twilio, or online music store Spotify are down around 60 per cent from their peaks.

In Australia’s All Tech index the stocks that have dropped hardest include a range of speculative smaller stocks.

A handful of former market darlings have also seen their share prices shredded: Over the last 12 months software group Appen is down 60 per cent, online retailer Kogan is also down 60 per cent while the hapless payments group Tyro is down 50 per cent

For now it’s nothing but bad news for tech investors, which raises the question of when the bargain hunting will begin.

At fund manager SG Hiscock, Hamish Tadgell says: “With interest rate expectations rising, technology – and particularly unprofitable technology companies – have seen massive underperformance.

“There has already been a massive correction in certain parts of the market. Any near-term fade in inflation expectations would likely be positive for growth stocks given their sharp sell-off.”

Originally published as Nasdaq in a bear market as the tech tide turns