Are we lookign at another dotcom bust

Just look at the list of technology trailblazers whose values have plummeted from record highs during the past few weeks.

Investors have refocused on safer sectors such as utilities, health care and consumer staples instead of companies that promise potential growth from online services that are building huge audiences.

Stung by the abrupt change in sentiment, the stocks of recent stars such as Netflix, Facebook, Twitter and LinkedIn are 20 per cent to 45 per cent below their recent peaks. The steep downfall is raising questions about whether this is just a fleeting fit of fickleness or the foreshadowing of another market bubble about to burst.

Stocks across all sectors dropped Friday. The tech-driven Nasdaq composite index fell 54.37 points, or 1.3 per cent to 3,999.73 to punctuate a punishing week, and is down eight per cent since early March, when it hit a 14-year closing high of 4,358. Last year, the Nasdaq soared 38 per cent.
The Standard & Poor's 500 index fell 17.39 points, or 0.95 per cent, to 1,815.69 Friday. The S&P 500 is four per cent off its recent high on April 2.

Optimists expect a rebound. They point out that technology remains a bright spot in an otherwise dreary economy as software, computers, mobile devices and the internet fill increasingly instrumental roles in work, entertainment and communications.

“Tech is where the action is,” says longtime industry analyst Roger Kay.

Pessimists view the tech sector as ground zero for a long-overdue reckoning. They say the stock market has been pumped up by the flood of money that the Federal Reserve has funnelled into the long-term bond market since the financial meltdown of 2008 decimated the economy. Now that those government-backed bond purchases are tapering off, people are starting to realise “the only thing holding this balloon up is the Fed blowing air in it,” said Fred Hickey, editor of The High-Tech Strategist newsletter.

That's why he believes investors are parachuting from stocks that had soared to dizzying heights in a short period of time.