Chapter 1: What signals are indicating a turning point in tech stocks?
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Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made.
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Chapter 2: How is the current selloff in big tech perceived by investors?
and Iran. It also is a bit of a good cop, bad cop situation, Tim, except frankly, President Trump seems to be playing Both of those roles is on the one hand, he is citing good progress in negotiations he says are happening. On the other hand, he's taking to true social and threatening Iranian infrastructure, the energy infrastructure, oil wells, Karg Island.
He said all of these things, even water infrastructure through desalination plants could be targeted. according to the president, if the Strait of Hormuz is not open for business, which, of course, right now it is not. So the escalation risk is certainly there, especially considering thousands more American service members have arrived in the theater.
Of course, you had thousands of Marines and sailors aboard an amphibious assault ship. You have more Marines and Army paratroopers that have been ordered there. And you have reports in the likes of The Wall Street Journal and The Washington Post that the president is seriously considering puttingā troops on the ground in some form.
The Wall Street Journal talking about the idea of seizing enriched uranium, something that would likely require ground forces and take some time. You also had the president telling the Financial Times that he would like to take Iran's oil, something that could involve the seizure of Karg Island, which is also something that is likely to need
ground forces then the other escalatory thing we have to keep an eye on here is of course the iranian proxies the houthis who over the weekend launched attacks missiles and drones at israel specifically remember how disruptive the houthis were in the red sea beginning back in 2023 very disrupted to commercial shipping so that poses a threat to the alternate route through the red sea that other gulf nations like the saudis are using to try to get their energy exports
So there's escalatory risks at the same time, Tim, that the president is still talking about this diplomatic off-ramp. I guess, though, when you still have Iran saying that the claims the president is making around Iran, accepting these points when Iranian officials are calling them excessive and illogical, it doesn't seem like we are necessarily getting any closer to concrete resolution here.
Bloomberg's Kayleigh Lyons. More from her and Joe in the 1 o'clock hour on A Balance of Power. Thanks so much, Kayleigh. Well, back to markets, because the Nasdaq 100 has slipped into correction territory. The sell-off in big tech now flashing signals that have marked turning points in the past.
Many in Wall Street now see the sector as a potential opportunity, pointing to oversold conditions and the likelihood of relief rallies, even amid uncertainty tied to the Iran war. For more, let's bring in Denise Chisholm, Fidelity's Director of Quantitative Market Strategy. Denise, in your view, is this a turning point? Is this a buying opportunity when it comes to tech?
Yeah, when you look at the data, I mean, there's certainly concerns around the technology sector since it's been such dominant leadership in the markets. But it's interesting, when you look at the mathematical setup, we saw this very, very briefly in the tariff tantrum last year. But the sector is now in the bottom third of its cheapest when you look back to the data since the 60s.
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Chapter 3: What opportunities exist in the tech sector despite market uncertainty?
So you have this massive disconnect between the valuation and the operating profit. That is rare historically. When you look back in all industries to the 60s, you only see this happen 2% of the time. The instances that it happens are things like the financial crisis.
So, one of the ways that we can sort of tackle this quantitatively is to say, well, it is different, but we have seen a little bit of this movie before. In some ways, software is going through its own great financial crisis pricing. Now, how has that worked, historically speaking?
Now, N is only 2%, so you can't draw broad conclusions, but we have seen this historically in technology sectors like communications, you know, com equipment. And hardware, even though we haven't seen it in software, we've also seen it in semiconductors when you look back historically.
And it's, you know, in some ways the odds from a go forward perspective, once you're priced like this, what are your odds of outperformance over the course of the next 12 months? And what's your average outperformance over the next 12 months? Is look, it's only 50-50, which is hard to say that that's a table pounding buy. It's not.
But it is to say that the average outperformance of all these sectors is around zero in the sense that they tend to be at the point where much is priced in and downside might be more or less limited.
The technology sectors like semiconductors and comm equipment have actually had higher odds of outperformance, which gets to a little bit of what Chair Powell was talking about, which is technology as a sector has a history of reinventing itself. And yes, there may be, in fact, bankruptcies within the software industry,
but there might be companies that are actually coming in to create new products as well.
I understand the urge to use history as a guide here, but I do wonder for those people who are out there who say, wait a second, we are on the verge of a new industrial revolution. We are seeing something with AI that we've never seen before in modern investing and in the modern economy.
Do you have to throw the history textbook out the window or the markets history textbook out the window in an environment like this?
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