The recent sell-off in tech stocks is the result of several factors. The market is increasingly focused on companies that have proven profitable, which will likely help them ride out the long-term downturn. Consequently, more investors are moving away from tech speculative names in favor of more reliable, stable businesses. In this environment, analysts are pointing to rising interest rates as a major cause of the recent sell-off.
Earlier this year, tech companies had a mixed year. The deep Covid-19 recession pushed investors to high-growth sectors. Many tech companies have a high risk profile, including fast-growing platform players and electric vehicles. This created a perfect storm for investors, resulting in a large drop in value stocks. Despite the low valuations, a large number of these companies still have great prospects.
The selling in the tech sector has also been accompanied by high bond yields and expectations of strong growth. Higher interest rates have reduced the returns on these unprofitable companies, which has helped the financial sector. In fact, banks and financial firms have done particularly well in the past few months. Therefore, investors should focus on profit-making tech stocks to avoid the sell-off that is expected to continue for the rest of the year.