If you follow my writing, you know that I'm a bit of a tech stock junkie. Who can blame me? Not only do I get to watch and capitalize off of trends in the market, I get to follow amazing advancements in technology. That is a win, win my friends! That being said, we've seen big things in the tech market this week; and by things I mean drops. However, on Thursday, it seemed as though the market was on the mend. So, today we'll talk about the reason I think we saw the tech market (and most other US stocks) fall throughout the beginning of the week, what's happening in the market now, and what we can expect from tech giants like Apple, Facebook, and Twitter in the near future.
Why The Market Struggled
When you first take a look at the tech market and try and figure out the reason for the fall, it's easy to think “This doesn't make sense.” However, in this particular case, it's important to look outside of tech. The reality is that the Dow Jones Industrial Average, the S&P 500, and the NASDAQ have all had a tough week. The reason must be bigger than tech.
In this case, the reason is simple. The cause of the drop was economic changes. First off, the Federal Reserve announced last week that they would not be aggressive in increasing interest rates. While investors liked the fact that the Federal Reserve isn't going to be aggressive, they seemed to have left out a big piece of the news in the beginning; the fact that rates were going up. Higher rates mean less gains; and that seems to have set in earlier this week.
The second thing to look at is why the drop grew in momentum on Wednesday. Once again, the reason for this is simple. Wednesday morning, before the opening bell, new industrial data was released. The data showed that orders for durable goods were down for the third month out of the past four in February.
So, What Is Causing The Recovery?
Tech stocks seem to be back on the rise. Facebook, Twitter, and Apple are all trading at gains, and the upward momentum seems to be sustaining; and the reason is once again, simple. The reality is that investors aren't going to let the market crash without good reason. While the fact that the Federal Reserve is going to raise interest rates is a bit of a concern, and the fact that durable goods orders are falling, these just aren't big enough reasons to force a major correction (10% decline or greater) in the market. Throughout the week, all major indexes in the United States have fallen drastically; and they've finally hit the floor! Now, instead of seeing a reason to sell, investors are seeing an opportunity to get in on profits cheap while the market is at a low.
What We're Likely To See Next Week
Next week is most likely going to be a great week for the market. An important thing to remember is that the market moves in waves. When valuations are too high for one reason or another, corrections happen and the value of stocks fall. However, following large declines like we've seen, we generally see pretty impressive gains just around the corner. So, given the fact that it seems like we've reached the floor on this drop, it's time for stocks to bounce back; and if history is any indicator, it will be in a big way.