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Over the last decade, outperformance for Big Tech and the broader technology sector has been unparalleled. The numbers don’t speak for themselves so much as they scream. The Nasdaq swaggered through the 2010s, leading all major stock indexes and soaring by more than five times during the decade. Then, share prices were bolstered by Covid lockdowns, which aided all things digital and proved immune to everything from lockdowns to legislation aimed at regulating their business models. Silicon Valley dominance was so potent precisely because tech provided a rare shot in the arm – an inoculation against a growth-deficient world.
But in the froth of every boom, fact becomes blurred with fantasy. Forecasts become bolder. Promoters compete to promise an ever-brighter future. By the end of the bull market, all things seem possible. Now, we have just witnessed a natural culmination of the tech boom that began in 2009 and then super-sized during the pandemic. Silicon Valley suffered a pummeling in 2022. This is new and unfamiliar terrain.
Looking out longer-term, the dual macro trends of higher nominal growth and higher interest rates will continue to constrain the tech sector. And, a more hostile regulatory environment, based on the legitimate concern that Big Tech is stifling innovation and swallowing younger competitors, will be a persistent headwind.
Bubbles that burn billions of dollars don’t reflate quickly. History is clear on that. History is also clear on the aftermath of bubbles. Investors, conditioned by years of outperformance and familiarity of the investment class, don’t give up on past winners easily. Recent investor flow data confirms this, with investors continuing to shovel enormous amounts of capital, “buying the dip,” into technology.
On many levels, this is understandable. People’s perceptions of the past shape their view of the future. Old narratives take time to be replaced by new ones. Humans have a difficult time updating their mental models – overestimating the probability of what has already happened to them, while underestimating new scenarios.
Yet, investors should brace for a long period of underperformance for the technology sector. Better opportunities exist elsewhere.
Tyler Mordy, CFA, is CEO and CIO of Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. The Forstrong Global Investment team contributed to this article. This article first appeared in Forstrong’s “2023 Super Trends Report: Metamorphosis” publication available on Forstrong’s Global Thinking blog. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on Twitter at @TylerMordy and @ForstrongGlobal.
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Content © 2023 by Forstrong Global. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.
The foregoing is for general information purposes only and is the opinion of the writer. The author and clients of Forstrong Global Asset Management may have positions in securities mentioned. Performance statistics are calculated from documented actual investment strategies as set by Forstrong’s Investment Committee and applied to its portfolios mandates, and are intended to provide an approximation of composite results for separately managed accounts. Actual performance of individual separate accounts may vary with average gross “composite” performance statistics presented here due to client-specific portfolio differences with respect to size, inflow/outflow history, and inception dates, as well as intra-day market volatilities versus daily closing prices. Performance numbers are net of total ETF expense ratios and custody fees, but before withholding taxes, transaction costs and other investment management and advisor fees. Commissions and management fees may be associated with exchange-traded funds. Please read the prospectus before investing. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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