This year’s technology rally defies logic, echoing the famous dotcom boom and bust of the early 2000s.
The rally in the US sharemarket this year has been driven by technology shares, but it is faltering, with echoes of the dotcom bust of 2000. We could see share price falls accelerate in coming months with US interest rates expected to remain relatively high and geopolitical risks rising.
The rally in the US market this year has been driven by technology shares such as Nvidia, but it is faltering.However, with war raging in the Middle East and Russia, the US economy slowing and bond yields and oil prices rising, sharemarket volatility is rising. A global recession looks like a higher probability outcome in coming months and investors are worried about the repercussions on portfolios, asking which sharemarket sectors could provide the greatest protection.
Technology booms can turn into busts. In the late 1990s, online retail giant Amazon was one of the winners in the dotcom rally, but its stock went from over $US5 in December 1999 and fell to just over 30¢ in 2001. Microsoft dropped from $US58 in 1999 to $US22 in 2000 – investors had to wait 16 years for Microsoft and 11 years for Amazon to get their money back.
It takes a lot more work, and can be uncomfortable for periods of time – it is always more comfortable moving with the herd. However, you may be able to uncover investments that could provide superior potential outcomes in an array of economic scenarios, as opposed to betting on a single outcome – that is, that the technology boom will be ongoing.