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Has the Tech Bubble Deflated Enough to Be a Buy?

By Suzanne Woolley

Almost 70% of technology stocks have fallen so far that they’re in a bear market (down more than 20%), and almost a third have tumbled more than 50% from their peaks.

Pedestrians in front of the Nasdaq MarketSite in the Times Square neighborhood of New York, U.S., on Monday, Feb. 28, 2022. Investors are facing a risk most of them have never seen in their lifetimes — a major crossborder war in Europe — and that’s wreaking havoc across financial markets.

But they may have farther to fall, if the tech bubble more than 20 years ago is any guide, according to a new report.

In 2000, within two months of the March peak, more than 90% of the tech sector was in a bear market, according to Richard Bernstein Advisors’ Dan Suzuki.

After that, “the mother of all dead cat bounces resulted in tech stocks rebounding more than 30% and recovering nearly two-thirds of their initial losses,” Suzuki said in the report. That bounce enticed investors to get back into tech — and the sector slid 82% over the next two years.

In the prior bubble, the tech and telecom sectors shrank from making up 41% of the S&P 500 to just 16% in 2002, the report noted. Today, the weight of tech and telecom sectors (telecom is now classified as the communication services sector) in the S&P 500 has fallen, but just from 40% to 38% as of March 2.

What signs should we look for to gauge whether the tech bubble is fully deflated? Suzuki laid out these markers:

  • valuations that significantly contract and an IPO market that goes cold
  • tech and crypto analysts going from being lionized to being viewed as villains
  • fewer tech-focused investment products like ETFs
  • the cancellation of tech- and innovation-focused TV and news columns
  • people no longer quitting jobs to join early-stage start-ups or trade crypto
  • and the fact that “no one will care about reading a report like this when the bubble has deflated.”

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