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08 June 2020

Technology; the long-term winner

Much discussion has surfaced around a post-COVID-19 world and what the new normal is going to look like, but the common thread running through all these arguments is that technology is the long-term winner.

The US Nasdaq is up c.8% year-to-date, outperforming the wider S&P 500 index, which has dropped by c.3% over the same period. Drilling down further paints the same rosy picture; Amazon shares have rocketed by c.41% since the turn of the year, with the respective figures for Microsoft and Facebook being c.23% and c.18%.

Technology companies are at the crux of a transformation towards an increasingly digital world. We have already witnessed a shift towards e-learning, and ‘Big Tech’ has been the leader in helping professional organisations and learning institutions to virtually experience real world environments.
However, this is not to say that the future will be pain free. The uprising in the US over the tragic and brutal death of George Floyd, and the resultant debate as to whether social media platforms should wade into the arena of free speech, with Twitter placing a fact-check under President Trump’s tweets and Facebook facing backlash over Mark Zuckerberg’s refusal to take action, could come back to haunt the leading technology companies.

President Trump has put Section 230 of the Communications Decency Act 1996 under fire, which gives blanket immunity to platforms for content posted by users. Democrats and Republicans are united behind the act’s removal, and we should expect fireworks as the unchartered protection for Big Tech slowly crumbles away.
A recent Citi/YouGov inflation survey showed that Britons are expecting an uptick in inflation over the next five to ten years. Expectations rose to 3.1% in May, up from 2.9% in April, and are some way off the Bank of England’s 2% target.

During April, as Britain was in lockdown, the consumer prices index fell to 0.8%, down from 1.5% in March, but as businesses and manufacturing resume operations, one could expect inflation to start its incline.
However, the return to normality will be staggered and slow; social distancing will limit demand in the long-term while the fears of mass-unemployment once the furlough scheme ends in October, could further detract from a rise in inflation. Alongside the continued weakness in the need for oil, epitomised by the continued low price for Brent Crude, currently sitting at US$39.78 per barrel, far below its 52-week high of US$70.25, will put additional downward pressures on inflation. The Government’s Quantitative Easing policy is repelling these deflationary forces and fashions a standoff with extreme consequences on either end.

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.
Technology; the long-term winner
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