Five good reasons why tech stocks are crushing the market this year
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Tech companies were already online, so lockdown didn’t hurt them
As a blatant example, when was the last time you remember actually buying a software package that was on CD-ROM? Yeah, we can’t remember, either. The shift to the cloud had occurred long before COVID showed up, and technology companies have for years been practising remote-work, online sales and video conferences. The global shut down really did not have any impact on the way they conducted business, at all.
Fear of missing out (FOMO)
This has been discussed before, but let’s look at it from an investment manager’s perspective. Suppose you are a fund manager, and you thought — as many did — that tech stocks were overvalued in January. So you were under-weight the sector. Now, it is August, and your fund performance, versus the market, looks horrible. You have two choices: One, stick to your convictions, and if you are wrong, have a horrible year, performance-wise, get no bonus, and possibly get fired; Or two, buy some tech stocks to try to salvage your yearly performance and bonus, so you at least keep your cushy job. Since tech is becoming a bigger part of market indices (with growth), we are seeing a lot of fund managers starting to buy the sector, even if they don’t really want to.
Short sellers have been forced to cover
Let’s face it, no one really likes short sellers. They are like those gamblers in Vegas who bet against the shooter in craps: just no fun at all for the majority of players. The shorts this year in the tech sector are getting crushed. Docusign (DOCU on Nasdaq), for example, is up 404 per cent in the past 52 weeks. There are 8.7 million shares shorted, and it must be a very painful experience watching that stock rise week after week. At some point, the pain becomes too much, and short sellers — even those convinced they are ‘right’ — start to cover their positions. This creates even more buying interest, and the shorted tech stocks can rise even more, which creates a fun up-cycle for those who are long the sector.