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Are tech stocks set for a dip as UK lockdown restrictions ease?

Analysis from Giles Coghlan, Chief Currency Analyst, HYCM

As lockdown restrictions and social distancing measures are gradually relaxed, there is a growing sense of optimism across the UK.

Schools, pubs, restaurants and shops are now opening their doors once again; naturally this is impacting various assets and markets.

At present, investors are pricing in on what the post-pandemic world will look like. Given the great reliance on technology throughout the COVID-19 outbreak, tech stocks in particular have been on an impressive run since March, as investors have pumped huge amounts into global equities.

This is evidenced by the fact that tech giants are enjoying a strong performance. The so-called FAANGS – Facebook, Amazon, Apple, Google (Alphabet) and Netflix – are trading at, or close to, their all-time highs. Meanwhile, the broader S&P 500 is 22% up on its pre-pandemic levels.

However, as society begins to open up, debate has started to emerge as to whether these trends will be sustained. After all, it is likely that individuals will become less reliant on technology in all aspects of their lives as the UK follows its roadmap out of lockdown (and other nations follow suit).

Will tech stocks lose value in the new normal?

It is impossible to say how long the tech stocks boom will last, but right now at least, the market is performing strongly in spite of the continued economic volatility all over the world. Particularly for the US high tech market, the Nasdaq is a staggering 42% higher than its pre-pandemic level, which was at the time a record high.

A setback in the rollout of COVID-19 vaccines in the US, as agencies temporarily halted the use of the Johnson & Johnson vaccine, has prompted a further boost to companies and asset classes that prospered in previous lockdowns.

However, if there was a seasonal shift that could buck this trend, then the arrival of summer could be it. The old adage tells us to “sell in May and go away” – this is based on statistical data, which suggests that stock markets tend not to gain between May and November.

This might ring true for investors and traders; however, it is difficult to see whether the end of restrictions will signal a return to our old ways entirely. Although there is no denying that most individuals are keen to return to a sense of normality, it is highly likely that the “new normal” will look quite different to life before COVID-19. From remote working to the rise of videoconferencing, it is likely that digital services will remain increasingly embedded into our day-to-day lives.

Cryptocurrencies creating media storm

The booming cryptocurrency market is another important trend to watch over the coming months, with Bitcoin alone recently valued at $1.2 trillion. Notably, this puts Bitcoin’s value ahead of Mastercard, PayPal and Visa combined.

How long will these gains continue? This is the question so many people are asking. Also noteworthy is that Bitcoin’s latest valuation came in at the same time as Coinbase went public on the Nasdaq stock market, making it the first ever company specialising in cryptocurrencies to launch an initial public offering (IPO). This alone is a significant event that should be monitored. The advent of Coinbase offers many investors a straight bet in the crypto market which was otherwise not there. This is a key test for crypto buyers and strong gains in Coinbase will likely be met by strong gains in Bitcoin.

We can expect to see much more discussion about these developments in the weeks and months to come.

 

Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, United Kingdom, Dubai, and Cyprus.

 

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