Call it the Trump thump.
While the overall market has rallied smartly following the election of Donald Trump, tech stocks have stumbled.
The market swoon has been widespread in the tech world.
The tech-laden Nasdaq Composite Index, up 5.7% year-to-date as of November 15, is underperforming the broader market.
The S&P 500 Index has advanced 6.5% over the same period.
On top of that, the volume of bearish tech stock options has surged, according to the Wall Street Journal.
There are two competing theories about why tech stocks have taken a hit.
First, the incoming Trump administration is expected to take a tough stance on trade and immigration.
The tech industry needs visas to import software programmers, engineers and other skilled foreign workers from abroad.
If Washington clamps down on H-1B visas, that’s bad news for tech companies, in my opinion.
Then, there are the relatively rich valuations of tech stocks that were a cause for investor concern even before Trump’s upset victory.
As of November 8, the 12-month trailing price/earnings ratio for the S&P 500 tech sector was 20, compared with 18 for the S&P 500.
So far, in my opinion, the Trump era hasn’t been kind to tech stocks.
The prospect of tighter immigration policies could be a big negative for the industry even as tech stocks are sporting high valuations.
- Xavier Brenner has covered global market, business and economic trends for Interactive Brokers Asset Management since 2013. An experienced financial journalist, Brenner offers analysis and insights on the stories that matter to the discerning investor.