What keeps the stock market from a large-scale fall and what does the technology company have to do with it?

The coronavirus pandemic has caused a massive economic crisis around the world. However, so far the fall in the stock market as a whole has not been panic – the largest US stock indices in recent years have been at lower values.

Against the backdrop of serious problems faced by public organizations from many sectors (for example, air carriers), technology companies are largely holding the market from a large-scale decline.

The main losers of the pandemic period

One of the most affected segments is airline stocks. Shares in organizations such as Delta Air Lines and Southwest Airlines dropped significantly amid falling demand for transportation.

Financial companies such as Bank of America and American Express are not feeling very well – their incomes have declined in recent months, and securities have also fallen in price since the reports.

In particular, investments in companies in these sectors incurred losses of investment company Warren Buffett Berkshire Hathaway – in the first quarter of 2020, the company lost $ 49.7 billion.

Growth of technology companies offset market decline

During quarantine restrictions, the demand for the services of many technology companies has grown, and as a result their shares have risen in price. So in early May, in the week when American Airlines shares fell by more than 5%, Microsoft and Netflix shares grew by 2.4% and 3%, respectively. Securities Apple and Facebook also rose in price.

Demand for the services of many IT companies grew during the quarantine period. The massive transition to remote work has put office employees in need of buying additional equipment – this has increased the income of manufacturers (Microsoft). People who are forced to spend a lot of time at home actively watch TV shows and play games – this affects well the actions of streaming services and game dev companies.

Is everyone doing well

No, there are also victims in the technological sphere – for example, Airbnb is forced to cancel large-scale projects to launch penthouse rentals at the Rockefeller Center in New York and spend reductions.

Taxi services Uber and Lyft also faced a decrease in demand against the background of quarantine. This has led to large-scale reductions in Uber – company fired 3,500 people (and also lost CTO), Lyft also announced about a reduction of almost 17% of the staff.

What does all this mean for beginner investors

The current market situation shows the importance of observing the principles of building an investment portfolio. We wrote about this in one of the previous articles. In short, beginning investors after account opening and training on test access It is worth observing several basic rules:

  • financial strategy should take into account the availability of free assets and risk tolerance – if the investor has few own funds, and he understands that it will be difficult to survive drawdowns on the account, then aggressive trading strategies will not be the best choice.
  • assets must be diversified – there are subtleties here, but you need to use different types of assets (stocks, bonds, currency, etc.), diversify the portfolio within the classes (do not buy only shares of companies from one sector of the economy), conduct regular rebalancing so that the portfolio reflects current market situation.
  • getting started with low risk investments – investments in ETF, structural products or model portfolios allow new investors to control risks.
  • it is important to analyze the total value of investment activities – investors should consider commissions (on our website there are calculator for this purpose), choose a brokerage service tariff plan that corresponds to the chosen work strategy, understand how tax obligations are formed and take them into account.

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