Tech Bubble 2.0 Has Burst, Warns JPMorgan Quant
While the huge selloffs in high-growth tech stocks, such as bull market “FANG” darlings Facebook Inc (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), Netflix, Inc (NASDAQ: NFLX) and Alphabet Inc (NASDAQ: GOOGL), has taken many shareholders by surprise, not everyone was caught off guard.
JPMorgan analyst Marko Kolanovic saw this selloff coming a little over two weeks ago.
On January 21, Kolanovic noted, “As some assets are near the top and others near the bottom of their historical ranges, we are obviously not experiencing an asset bubble of all risky assets, but rather a bubble in relative performance: we call it a Macro-Momentum bubble.”
In a follow-up note released in February, he added, “While some parts of the Technology sector certainly have reasonable and even low valuations, segments of the Tech sector disproportionately benefited from momentum investing as well as investing based on extrapolation of past growth rates.”
According to Kolanovic, the idea that high-growth tech names could maintain growth rates indefinitely and/or generate revolutionary new product or service segments without massive capital investment was unreasonable for investors to expect.
“Over the past years, this trend has picked winning assets, sectors, and stocks often with less regard to fundamental valuation and more regard to momentum and extrapolated growth,” he concluded.
Kolanovic expects this growth-over-value trend to continue to reverse throughout 2016. While market rebalancing will likely lead to some major pain in the short-term, he sees the shift as a healthy for the market in the long-term.
Disclosure: the author holds no position in the stocks mentioned.
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