Pfizer vaccine news resulted in US tech sell-off. What is next for the Silicon valley stocks?
Tags: Vaccines, Technology News, Investing, Silicon Valley, Stock Market

Pfizer vaccine results in US Tech Sell off

With the majority of the global workforce ordered to stay home owing to the Covid-19 induced lockdown, the demand for tech-based services jumped like never before. Silicon valley stocks soon turned winners on Wall Street as the stock price of companies such as Amazon, Microsoft, Facebook and Zoom became the new safe haven for investors.

But last week — contrary to other sectoral stocks — the announcement of a possible vaccine developed by Pfizer resulted in a sell-off among tech stocks. Zoom Video which was among the top gainers (635% year to date) closed 17.4% lower. Amazon and Netflix dropped 5.1% and 8.6% against its 79.2% and 59.1% jump while Teladoc Health slid 13.7% and Shopify declined by 13.6%, CNBC reported.

Sell-off in the tech stocks wasn’t out of the blue. Possibility of a tech sell-off over the vaccine news had been talked about vigorously ever since the experts started associating the massive buying interest in tech stocks with the term ‘bubble’. According to a report in FT, the price-to-earnings ratio, at one point, rose close to levels last seen during the dot-com bubble.

Vaccine will end tech dominance: BofA

A widely published research report by Bank of America in September predicted that a positive COVID-19 vaccine development would mark the “end of tech dominance” which began since the US markets bottomed on March 23. The report reasoned that the rise and rise of US tech stocks were also possible because of the near-zero interest rates in the US.

“A COVID-19 vaccine would likely lead to a surge in economic activity, which would boost interest rates, leading to a surge in the discount rate and the relative valuation of tech stocks looking less attractive to other assets,” Business Insider reported citing BofA research.

But it may be too early to write them off

Although the silicon valley stocks may have surged over and above their actual value, it may be too early to write them off. After the initial sell-off, a recovery was witnessed in the tech-heavy Nasdaq. Experts say that the earning results of these tech companies may see a marked improvement and help the stocks maintain current levels.

“We’ll probably have these fits and starts of the rotation until we get into the spring,” said Shawn Snyder, head of Investment Strategy at Citi Personal Wealth Management, reported ET. “There’s still solid earnings for these technology companies, and you’re still facing a potential surge in COVID cases through the winter months and renewed restrictions and lockdowns.”

The bottom line

It must not be forgotten that an effective vaccine is yet to get regulatory approval. Questions regarding the availability of the Pfizer Covid-19 vaccine — especially owing to its ultra-low temperature storage requirements — has been making investors less enthusiastic about its early availability. Some reports suggest that its may take years before a Covid-19 vaccine reaches the poorest of the poor.

Therefore the road to recovery may be longer than anticipated. Must depend on the availability of a vaccine and not just an announcement of the same. Till then tech stock may well act as a safe haven investment and the interest rates may not see a swift rise.

To know more, follow us on Instagram or email us at hello@unfinance.co

Get yourself registered for early access of Unfinance App, Checkout www.unfinance.co