Apple shares are down more than 18% from their January high. Amazon's stock is off 12% from a recent peak in early February and chipmaker Nvidia has seen its shares plunge 24% since the middle of last month.
What's happening: Tech companies are getting hammered by the recent sell-off in markets. Many stocks in the sector have entered a correction, logging declines of at least 10% from their recent peaks. Nvidia, falling more than 20%, is in bear market territory.
The tech-heavy Nasdaq Composite joined the correction club on Monday, finishing the trading session 10.5% below the record it notched in mid-February. China stock market also decline 12% from the it's peak after a blistering run since 2020.
The chief reason behind the correction boils down to 2 reasons: A too stock market that has run up, too fast, too high and an optimism of a potentially improving economy thanks to the roll-out of the COVID-19 vaccine around the world, along with a 1.9 trillion injection by the US government to support the US economy still floundering under the pressure of the pandemic. This optimism is also signaled in the bond market with the yields of the US treasury moving up, nearing the previous point before the pandemic took hold of the US economy.
Is it time to get out of the stock market?
The answer is a resounding no. The recovery of the general economy as well as the continued support by the governments and central banks still makes the stock market an attractive place to invest until the end of 2021. It is just that the recovery will be more broad base, unlike the "K" shape recovery during the pandemic when Technology and China stock gained ground while the rest of the general market is hobbled by the pandemic lock down. It is unsurprising that the best performing stocks will get sold down and re-invested into sectors that have been badly battered during the COVID-19 pandemic. Going forward, there will be a more uniform rise in the stock market as the investment funds get spread more equally among all the industries rather than focusing on Tech and China. There may be concerns of a more meaningful correction when the rest of the industries caught up with the high valuation seen in the tech industry. Meanwhile, it still make sense to stay invested in tech for now, even with its high valuation as it is seen as a good insurance in the case of a resurgence of a COVID-19 variant, although it will be prudent to take some profit off the table when the tech market recovers from the correction.
Portfolio strategy
The portfolio has performed well in Feb with cash portfolio returning 2.52% and the CPF-OA portfolio returning 1.45%, despite losing some of the profits back in a recent correction. The switch out of long duration bonds (Legg Mason Global Bond) to short duration bonds (United SGD Fund) has prevented further losses on the bond allocation in the face of a rising yield. I will be maintaining the current asset allocation with the intention to make some tweaks to the SRS portfolio, switching out Franklin US Opportunity to Aberdeen North America smaller companies as the recovery theme will be more beneficial to smaller company fund, as compared to the tech heavy Franklin US Opportunity fund. Meanwhile, I will wait for the market to recover from the correction and take some profits on the profitable positions in technology and US smaller companies.
If you are looking to invest, the current correction will be a good entry time for a lump sum investment.
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