Tech stocks have seen a correction in September with the Nasdaq 100 index declining 5.7%, the biggest pullback since coronavirus led decline March. However, history suggests that tech stocks could rebound to new highs in 2021 according to UBS analysis, reports the Financial Times.
UBS Investment Thesis: According to investment research firm UBS, trading patterns of the last five years show that mid-cycle corrections in global tech stocks lasted an average of a month from peak to trough, and the sector lost up to 11%. The scale of rebound over the next six months was an average 20%.
2020 has been a volatile year for stocks due to the coronavirus pandemic. Even after the 5.7% decline in September and 7.7% decline in March, the Nasdaq 100 index is up 30% in 2020.
Applying a similar pattern to Nasdaq 100, following its fall in September, the index could hit new record highs by spring 2021, according to UBS.
Despite this, the analysis also suggests the need for diversification — due to choppy September trading.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said that investors with exposure to the most expensive tech stocks should rebalance their portfolios to take advantage of upswing stemming from tech enablers, cloud computing, Big Data, and 5G.
Bullish view: Invesco QQQ ETF (NASDAQ: QQQ) is up 29.02% year-to-date after falling 9.40% in September.
Many investors are still bullish on the sector despite the volatility, according to FT.
“Our fundamental view on the sector has not changed; we are positive on the tech sector . . . There has long been a structural shift towards digitization and automation that we believe will continue if not accelerate thanks to Covid,” said Mary Nicola, portfolio manager at PineBridge Investments.
Related Link: Tech Selloff Is Far From Over, Warns Morgan Stanley
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