Dependent on geography, over the past century share prices have appreciated on average by between 5% and 7% a year. So, rationally, after periods of significant outperformance we must expect the opposite – what investment professionals call “reversion to the mean”.
After the spectacular price surge in global stocks since the trough in March, a “reversion” was overdue, especially in rocketing new economy counters whose vendors prefer a Nasdaq listing. We saw some of this last night. As the graphs below from our partners at the Wall Street Journal illustrate, shares opened weakly in New York and kept falling. Nasdaq doing worst of the three major indices, dropping a touch over 5%.
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Indices only reflect the average performance by a basket of shares, so you need look deeper for the impact on retail investors’ favourites, particularly recent share split beneficiaries Tesla (down 9%) and Apple (-8%). Prices of BizNews portfolio stalwarts Amazon, Microsoft, Netflix, Spotify and Adobe fell in line with Nasdaq.
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Although signs of price stability emerged in Asia this morning, we may well experience another reverse in New York tonight as traders close off positions ahead of the weekend. Is this a warning of trouble, or a buying opportunity? Only time will tell. But I’m not panicking and neither should you. Last night’s drop was overdue, especially after August’s surge. Nothing, not even tech stocks, keeps rising indefinitely.
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For your attention today:
* Three favourites from the freshest Premium stories:
Covid-19 graft isn’t just a South African game – look at other African countries
Inside world economy engine room: Covid pushes US into club of high-debt nations – WSJ
David Shapiro on Barrick, Buffett’s new pick – plus other market-moving stocks
* Latest on Biznews Webinars –
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