Summer is here. Finally. Seattle has had only a handful of days over 70 degrees since last September. Its been a gloomy year here and the mood is reflected in the current economic outlook. Some key issues were facing are: the Greek debt crisis, tightening of monetary policy in emerging markets, and the raising of the U.S. debt ceiling.
Does tech stand a chance in this rough patch?
Its no illusion that the biggest big-cap losers of the year have been technology companies. When comparing the forward earnings to the rest of the market, were entering into a period where technology stocks have never been cheaper to buy. Now it could be that investors really dont believe in the earnings sustainability of tech companies, but the sector has shown sustainable business models as well as big-time disruptive ones facing traditional businesses. Its hard for me to believe that investors dont see the forward potential.
Most likely investors are waiting to see how a series of current events will unfold before putting money back into the market. While economic logic suggests that the chances of harsh fiscal tightening in the U.S. or a Euro-zone crash are small, they are still risks to be considered.
This slowdown will play favorably to tech. Why? Because people are hungry for growth. We saw the market react wildly to the LinkedIn and Yandex IPO, and salivate at the prospect of a Groupon or Facebook IPO in the near future. Once were past this anemic period, people will look to invest again in solid companies with good growth prospects that are cheap to buy. What sector is better poised for that than tech?
In the small chance that we do run into economic catastrophe, all bets are off. Until then Im wagering that well be seeing higher valuations and more M&A activity towards the end of the year, and a tech sector that will be bouncing back into a brighter 2012.