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Summary
- Tech stocks recorded quite a rise through the coronavirus pandemic last year.
- Most recently, however, tech stocks in North America sank in the wake of multiple events.
- While the S&P/TSX Capped Information Technology is up by 3.65 per cent this year, the index is down 0.22 per cent month-to-date (MTD).
Tech stocks recorded quite a rise through the coronavirus pandemic last year. The record levels of spike in tech stocks was boosted by the rising demand of technology to maintain human contact amid lockdowns and the trend of investors moving away from sectors beaten by COVID-19.
Most recently, however, tech stocks in North America sank in the wake of multiple events.
Let’s dive in to find out what could have triggered this decline in tech stocks.
Impact of Canada’s Stimulus Package on Tech Stocks
Tech stocks comprise about nine per cent of the S&P/TSX Composite Index. While the S&P/TSX Capped Information Technology is up by 3.65 per cent this year, the index is down 0.22 per cent month-to-date (MTD). Top Canadian ecommerce platform Shopify Inc (TSX:SHOP) slipped by over 15 per cent this month, while omnichannel service provider Lightspeed POS was down by about four per cent on Wednesday, March 17 (11.23AM EST).
The ramped-up vaccine rollout could be one of the contributing factors behind this fall, as it has likely pushed investors to test the waters with some pandemic-beaten sectors.
The decline in Canadian tech stocks could also be attributed to the C$ 100-billion government stimulus package targeted towards reviving other sectors, such as healthcare, energy, telecom, infrastructure etc.
©Kalkine Group 2020
While the size of Trudeau government’s stimulus package, which will be included in the 2021-2022 budget, is in line with many of its European counterparts, the US government is pumping a much larger US$ 1.9 trillion stimulus into its economy. Despite that, the extra spending will weigh down on the Canada’s debt load. As per the projections of the Conference Board of Canada, the net debt of the federal and provincial governments put together is likely to expand to 95 per cent of the country’s gross domestic product (GDP) by 2023-2024.
Why Are Tech Stocks Tumbling In The US?
Technology stocks have been taking a bit of a heat amid rising bond yields in the US. On Wednesday, tech stocks were likely impacted by the US Federal Reserve’s latest economic forecast on the future of bond purchases and interest rates.
The S&P 500 index sank by about 0.5 per cent on Wednesday morning (11.07AM EST), primarily weighed down by tech stocks, while the tech-heavy Nasdaq Composite was down by about a per cent.
Tech giants Apple Inc (NASDAQ:AAPL) and Google (NASDAQ:GOOGL) were both down by about two per cent on Wednesday, while Facebook and Microsoft posted a decline of 0.3 per cent and 1.5 per cent, respectively (11.53AM EST).
©Kalkine Group 2021
Tech Sector Beyond Pandemic Rise
As pointed above, tech stocks registered quite a spike in interest among investors last year as the sector as a whole enjoyed rising demand. But with the progress in the COVID-19 vaccine journey, economies are slowly beginning to open up. As people begin to venture out for work and daily activities once again, they have the option to wean off of the apps and software they needed on a daily basis to connect amid lockdown. This change of pace is bringing tech companies to the realization that 2021 may see a slowdown in their service demand.
