CEOs predict what’s next for the markets

Observers display stock market information at the Nasdaq market website in New York, Friday, January 21, 2022.

Michael Nagel | Bloomberg | Getty Images

CEOs and investors sounded an upbeat tone about the recent sell-off in global tech stocks, telling CNBC that it was unlikely to spill over into a broader market crisis.

The high-tech Nasdaq 100 closed Monday’s trading down more than 26% year-to-date, and earlier this month — after the Federal Reserve raised interest rates — the world’s largest tech companies shed more than $1 trillion in value in Only three trading sessions.

Technology and growth stocks have been hit hard by the prospect of a rate hike, as the Federal Reserve and other major central banks around the world look to rein in soaring inflation by tightening monetary policy.

The sudden contraction of high-growth tech stocks — widely seen as overvalued at the market’s peak in late 2021 — has prompted some commentators to express concerns about a tech-driven meltdown similar to the one that occurred in the 1999 “dotcom bubble” /2000.

“Obviously there is a question about the exact market value of some of these models, but the core business models are real business models — not just now but for the future, in terms of providing services and advice and what you have digitally,” UBS CEO Ralph Hammers told CN. BBC at the World Economic Forum in Davos, Switzerland, on Monday.

“It’s a trend that is underpinned by demographics and accelerated by changing customer behavior. So whether it’s in consumer services or in financial services or something else, I think technology business models, digital ones, are still valid that are going forward because they are real business models.”

While some analysts have suggested sentiment towards the technology sector is at its worst since the dotcom bubble, as higher prices force companies to make faster profits, they also highlight that long-term opportunities still exist for investors.

“It is not the same as it was 20 years ago in [the dotcom bubble]. Hammers added, “We had some models that were just models on paper and not real.” In the last 20 years, we’ve been able to show that there are real changes happening in the retail business, in the financial business and so forth, and that trend is not going to stop because of what we’re seeing now.”

His comments echoed those of Credit Suisse President Axel Lehmann on Monday, who told CNBC that investors should maintain a long-term view despite the temporary “shake” in tech stocks, as many companies within the sector are still “Strong and sound.”

“Valuation levels have gone down, basically, across all stock markets, but profits are still there for companies, so we see a bit of a shake-up happening,” Lehman said, noting that while there are similarities to the dotcom bubble, underlying trends are becoming Now more supportive.

“A lot of companies are likely to disappear, but we shouldn’t think that the underlying trends will disappear [not] Technology and digitalization are still important, new business models – these are the main themes that we all, as business leaders, need to be very careful about.”

Selling Remarkably Structured

The US Federal Reserve has said it will not hesitate to continue raising interest rates until inflation falls toward a healthy level, and its hawkish pivot in the face of stark increases in global prices has led, in part, to a massive exodus of tech stocks.

However, billionaire investor and co-founder of private equity firm Carlyle Group David Rubenstein said Monday that markets were “overreacting” despite the Federal Reserve’s efforts to manage expectations.

“In the 1999, 2000, 2001 crash, you had internet companies that had no revenue, and obviously no profits. They only had a business plan in some cases, and those companies shouldn’t have gone public, let alone get any,” he said. Rubinstein on the World Economic Forum panel chaired by CNBC.

“Now, you have a company like Netflix with 250 million subscribers. It might not be worth what it was worth in the market a few months ago, but it’s definitely worth more in my view than it’s currently trading for.”

Rubinstein added that when the markets “overreact” – as it were – there is an opportunity for investors to step in and “buy at the bottom”.

Netflix stock is down nearly 69% year-to-date, while tech company Amazon is down more than 35%.

“A lot of these companies whose values ​​have plummeted recently are still great companies, and the market may have overreacted. I think there have been some great buy-ins out there, and I don’t think it has anything to do with where we were in 1999/2000.”

Despite the sharp declines so far this year, Citigroup CEO Gene Fraser noted during Monday’s session in Davos that the US sell-off, in Wall Street’s view, was “remarkably orderly” among investors.

“They didn’t rush to the door the way they were with the global financial crisis when that crash happened, and where we were in 2020. We’ve seen a fairly systematic process of removal and a change in asset allocation,” Fraser said.

It highlighted that fixed income issuances across both companies and governments remained “fairly constructive” and that market indicators show that the recent downturn was more likely a “necessary correction” than an overall crash.

“There hasn’t been a lot of pressure so far – we’ve seen some in commodities, we’ve seen a little high yield – but this wasn’t the disaster that it would have been,” she concluded.

High growth, high disappointment

Part of the reason valuations have fallen so far and so rapidly this year is due to the rate of earnings growth in the tech sector in recent years, according to Maurice Levy, chairman of French advertising giant Publicis Groupe. He said companies had set deceptively high standards for earnings season.

“It’s a sector that grows 30% to 50% and when it only grows at 25% or 15%, there is disappointment and then you see the stock go down. So, we shouldn’t take this sector as a gauge because the expectation in technology is very high,” he said. CNBC’s Levi.

“We have to be relatively calm when we look at these numbers and with a longer view. Right now, when you look at the carriers and you look at all the people who are investing in ads, the numbers are still very good.”

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