Summary: This year has been brutal for growth and technology stocks in the US, and many investors are asking themselves whether the recent declines are a buying opportunity. The short answer is no. Financial conditions are still tightening and we are in a regime that is typically associated with negative equity returns. The most frothiest parts of the US equity market are also still valued at equity valuations above their pre-pandemic levels suggesting more downside risks.

Pre-pandemic valuation levels have not been reached yet

With Nasdaq 100 futures down 27% from its late 2021 peak many clients are asking whether it is time to aggressively get into the equity market and especially US technology stocks. Our view on US equities has not changed and thus we remain defensive favouring themes such as commodities, defence, logistics, India, cyber security, semiconductors, and high quality companies. Financial conditions are still tightening and we have entered a level of financial conditions that is typically associated with negative equity returns. India’s export ban on wheat over the weekend due to a failed harvest will continue add inflationary pressures impacting interest rates and equity valuations.

It is interesting to note that the 4% most expensive part of the US equity market, which are companies with the 12-month forward EV/Sales ratio above 8x, is still more expensive than its pre-pandemic equity valuation level despite the recent significant declines in US technology stocks. Even if this group of very expensive stocks get back to their pre-pandemic level, which would require another 15% drop, that level would again be twice the equity valuation level from the period late 2013 to late 2016. In other words, if the frothiest part of the US equity market has to come back to those levels the declines in front us will be quite substantial. We recommend investors to begin planning for which technology stocks to buy based on business model analyses and wait for equity valuations to come down further. In our view, there is no time to rush. It is better to get it right than getting there fast.

https://www.fxmag.com/forex/the-frothiest-us-technology-stocks-are-...