The sell off in technology stocks last week saw the Nasdaq index fall to just over 5,000 in a matter of days, and the value of the famous FAANG family (Facebook, Apple, Amazon, Netflix and Google) fell by just under 2%.
However, it does not signal the beginning of the end for the sector according to Mark Leach, investment manager at James Hambro and Partners.
Technology stocks had become stretched and some market consolidation “is healthy and to be expected”, he said.
“Looking at the price action on Friday in closer detail, it looks more like investor rotation than a protracted bear market in technology.
“Evidence for this was the outperformance of sectors that have been extremely lacklustre during the year, including the energy sector,” Leach added.
The fundamentals of the sector remain solid, with Kames Capital’s Craig Bonthron pointing out a wider breadth of successful companies growing outside the FAANG sphere.
He said: “Unlike 2015 when the market was being led up almost solely by the FANG, is now exhibiting more breadth of fundamentals, with broader tech, mid-cap tech and other sectors also performing well.
“Only financials and energy have been meaningful drags thus far.
“However, prices in some areas have run up to the point where near term multiples and share prices of some structural growth stocks did look extended and a pull-back was probably warranted.”
Bonthron added the pull back seemed “very flow driven” with ETFs driving the indiscriminate buying and selling of stocks.
