The stock market has been on a roller coaster ride recently, with raging inflation, rising interest rates, and plummeting asset prices all contributing to its volatility. The technology sector has been particularly affected, with even heavyweights like Apple and Alphabet Inc. struggling to hold onto their value in the midst of the economic turmoil.
For student investors, this presents a challenge as they navigate the shifting market dynamics and weigh the risks and returns of investing.
Technology stocks have taken a fall
Rising inflation and interest rates, along with plunging asset prices, can have a devastating impact on the stock market because they lead to a decrease in consumer and business spending, resulting in a decrease in corporate profits. When profits take a hit, technology stock prices often follow suit. Additionally, when interest rates rise, bonds become more attractive to investors, which can lead to a decrease in demand for stocks.
In October 2022, Meta’s market value fell to its lowest point in four years following the release of its earnings report which Wall Street termed “a train wreck.” In November 2022, the company’s value stood at 300 billion USD — a 700 billion USD plunge from its 1 trillion USD valuation in September 2021. Meta faced another historic loss in February 2022 when its market value fell by 230 billion USD, making this the biggest single-day wipeout for any US company.
Meta’s bet on the “metaverse” as a new focus was a risky gamble that Mark Zuckerberg had hoped would lead to exponential growth. But the market conditions weren’t favourable for such risky ventures, as money has flowed out of more speculative investments such as cryptocurrencies into safer options like short-term Treasury bills.
Twitter’s tumultuous tale
Amidst all the turmoil in the technology stock market, another drama had been playing out on the side: Elon Musk’s purchase of Twitter. The closing of Musk’s 44 billion USD deal to purchase Twitter, following months of legal challenges, has set Twitter on an uncertain course. The unpredictable CEO, known for his ambitious ventures and eccentric personality, has stated his intentions to make the social media platform more open to free speech.
However, in the process of achieving his ambitions, Musk set off a whirlwind of speculation and anticipation for investors with his decision to delist the stock from the New York Stock Exchange. By making Twitter private, Musk no longer needs to disclose financial performance and follow shareholders’ demands. In other words, Musk can take Twitter away from public scrutiny and into his own vision. Investors find themselves taken by surprise, and Musk’s tendencies to make bold statements only add fuel to the fire.
When Musk announced his intention to purchase the company, Twitter’s stock price shot up. Stockholders were excitedly holding on to their shares, anticipating them to reach the price Musk had indicated he would take the company private at.
As the legal challenges unfolded, excitement turned to confusion and uncertainty as investors were unsure of whether to sell their shares or wait for the prices to reach that sweet spot. The constant volatility of the stock market and the tweets and statements from Musk made it hard for them to make an informed decision, let alone a profitable one.
How should student investors weather the storm?
So, where do investors go from here?
When it comes to technology stocks in today’s stock market, student investors are faced with a difficult decision — some may choose to focus on businesses with cash flow, taking a value approach, while others may prefer a diversified portfolio, holding not just stocks but bonds as well. Some student investors may also opt to invest in index funds, holding a mix of different companies and sectors for the long run.
It’s crucial to keep in mind that there is no one-size-fits-all solution when it comes to investing, and each investor’s risk tolerance and long-term goals are unique. It’s essential to do your due diligence, research, and consult financial advisors before making any investment decisions. Ultimately, what’s most important is that you find a strategy that makes sense to you and aligns with your goals.
The bottom line? The current economic climate is tough for growth-oriented companies, and investors need to weigh the risks and rewards carefully. Do your research, consult financial advisors and make decisions that align with your personal investment goals and risk tolerance.