Jordan Hiscott, Chief Trader at ayondo markets, comments on why tech shares have plunged this week: “Things are changing. Currently we have a generation of traders and investors that have only operated in an extreme low interest rate environment. In the aftermath of the 2008 global credit crisis all major central banks cut interest rates to almost 0% and issued a quantitative easing bond buying scheme. There were many critiques of this operation, but in actual fact it worked in its entirely. The banking system didn’t collapse and stock markets have now reverted.
“However, now that various economies have since improved, especially the US, there is a no longer the need for this extreme low interest rate environment. One of the key benefactors of this type of low interest program is the stock market, in particular tech stocks. Investors have little place to allocate their funds to get a return, other than the stock market, and tech stocks provide a fantastic opportunity as they offer an exciting prospect of a listed tech, or as I call them ‘disruptor’ stock, which is also likely to generate a better return than leaving the money in the bank.
“Confirming this, since 2008 the NASDAQ is up 501%. If we look at the US Federal Reserve, which since 2015 has raised interest rates eight times, it’s no surprise that just after the most recent increase we’ve had a significant pull back in the NASDAQ from its all-time highs. With interest rates now also likely going higher in the future, my advice for investors and traders would be proceed with caution.”