The rout in tech stocks may not yet be done, warns a long-time investor in the space.
“We haven’t seen the potential second leg down, which is a reflection in this country and around the world that we have a recession, which would take down expected revenue, earnings and cash flow,” Paul Meeks of Independent Solutions Wealth Management recently said on Yahoo Finance Live. “If and when that happens, you have lowers multiplied to a lower P/E ratio and that could be the next leg down.”
The first leg down in tech stocks, Meeks said, has been fueled by valuation contraction as investors position for higher interest rates and potential recession.
And it was an ugly one, with the Nasdaq down 29% so far in 2022.
The former high-flying FAANG (Facebook, Amazon, Apple, Netflix and Google) complex has been hammered year to date. All of the acronym’s components have shed more than double-digit percentages this year, led lower by a stunning 71% crash in Netflix.
Investors have also marked down the entire crypto landscape, everything from bitcoin to Coinbase to Robinhood, as risk assets lose their luster in the higher rate environment.
Meeks thinks there is more pain to come.
“I still think if we have a recession — which is my expectation or at least we should plan for it and hope we are pleasantly surprised and have a soft landing — that we could drop another 15% to 20% at least on this second leg that I am referring to,” Meeks said.