There's an eye-popping statistic that shows turbulence in tech stocks may just be getting started
- Tech stocks have been going through a rough patch, with the Nasdaq 100 dropping 8% over the past seven trading sessions.
- One statistic suggests that increased volatility - and its accompanying stock losses - may just be getting underway.
If you think things have gotten bad for tech stocks, you'd better strap in, because the turbulence may just be getting started.
At least that's what one stock market measure is suggesting.
An index tracking the 30-day expected volatility in the tech-heavy Nasdaq 100 is trading at the highest level since 2006, relative to a similar measure of implied price swings in the S&P 500. In fact, conditions got so dicey on Wednesday that the spread between the two so-called fear gauges went as far as to hit a 13-year high at one point.
That's terrible news for tech traders, who have already endured an 8% decline in the Nasdaq 100 over the past seven trading days - a rough patch that was kickstarted by a privacy scandal at Facebook. And the industry's woes don't stop at Facebook, with headwinds rocking the stock prices of other massive companies like Apple, Amazon, and Tesla.
The fact that volatility expectations are spiking for tech suggests investors see no end in sight for the ongoing turmoil. Not to mention that, from a more ominous perspective, wide price swings have historically signaled the final stage of a market cycle.
But wait a minute, you might be saying. Doesn't volatility represent more opportunity for skilled fundamental investors?
That's true to a degree. But throughout history, the S&P 500's measure - known as the Cboe Volatility Index (VIX) - has traded inversely to the benchmark roughly 80% of the time. So if higher volatility is in store for the tech sector, it's likely to be accompanied by stock losses.
It's entirely possible that investors will use weakness in tech as a way to boost exposure at discount share prices. But considering the way the volatility regime seems to have shifted into a choppier stage, they'd be well-advised to do so with extreme caution.