Tech Stocks Spike When the Economy Is Weak
The coronavirus may end up being the catalyst that makes the stock market finally see Tesla stock for what it is.
That said, Tesla’s rise to market fame isn’t simply the product of hype and social contagion.
It’s the result of a fundamentally weak global economy . The more the “real” economy struggles, the more investors speculatively pump capital into moonshots like Tesla .
Tech stocks are rising at their fastest pace in seven years . This is not good news.
Over the past few years, shares in tech companies have become negatively correlated with interest rates . The rest of the economy isn’t growing strongly, so folks with money have inflated shares in “promising” tech companies to bubble-level proportions. They believe this is the only way they can get a decent return on investment.
Unfortunately, numerous analysts believe that the flight to Tesla stock and other tech shares only masks significant risks. As Goldman Sachs’ head of global securities research, Robert Boroujerdi, explained in :
We believe low realized volatility can potentially lead people to underestimate the risks inherent in these businesses. The fear is that if fundamental events cause volatility to rise, these same passive vehicles will sell and exacerbate downside volatility.
The coronavirus could be one of these “fundamental events.” So too could be a general market crash , especially when analysts are now predicting a (% fall) .
So maybe it’s time to get rid of Tesla stock now, while the going is still good.
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