What is the reason behind the remarkable revaluation of technology stocks?

  

To edit this document, you must first understand that editing is NOT content development. As such, with the exception of adding transitions, you will NOT be allowed rewrite any portion of this document. However, you may rearrange or omit information in order to enhance clarity. Remember to use deductive structure when editing and try to ensure cohesion by adhering to the Known-New Contact.
Lessons on Organization Part I:
Deductive v. Inductive Structure
As of the middle of March, the Nasdaq Index had outperformed the S&P 500 index by an
unprecedented 104% on a year-on-year basis. Since the creation of the Nasdaq index in February
1971, we have never witnessed anything close to this type of performance gap. Statistically
speaking, it has been a seven-standard deviation event, which would normally be viewed as a one in
a trillion occurrence.
This amazing revaluation of technology stocks reflects some astonishingindeed revolutionary
fundamental developments. These include an explosion of ecommerce developments, with
announcements virtually every day of new business-to-business ecommerce exchanges and an
outlook for over $7 trillion of ecommerce transactions by 2004. That should drive triple-digit rates
of growth in many related Internet infrastructure industries.
Related developments include transformation of the worlds communication and computing
networks into an integrated broadband network. The transformation has accelerated dramatically
over the past year, thanks to important advances in optical networking technology and wireless
communication technology. In short, many of the worlds major corporationsand virtually every
premier technology firmare engaged in what promises to be the biggest infrastructure
development project in history.
The only problem with all of this is captured in the old saw: success breeds excess. As we observed
in our February World Report (called Keep Your Seatbelts Fastened), the rise of day trading and
momentum investing has resulted in average holding periods for some dotcom stocks of less than
one weekor in one case less than 72 hours. Margin debt grew by 60% last year and continues to
rise rapidly in the first few months of the year. And the U.S. economy has grown so rapidly in recent
quarters that the Fed is determined to keep tightening monetary policy until it succeeds in
dampening growth substantially.
All of these developments leave investors confused and nervous. And that is contributing to major
market volatility, with the Nasdaq index now off nearly 12% from its high. Such volatility should
not be surprising in view of the remarkable gains posted by Nasdaq over the past year, and we
would not be surprised to see high levels of volatility continue at least until the Fed has completed
its tightening cycle. Our expectation is that the Fed will raise rates by 0.25% at the May and June
meetings and then gain hold for the remainder of the year. Our best advice to investors on how to
cope with current volatility is, unfortunately, rather boring: Just focus on the basic principles of
diversification, balance, and long-term orientation.

Introduction: The Nasdaq index has been performing exceptionally well, outperforming the S&P 500 index by an unprecedented 104% year-on-year, which is a seven-standard deviation event. This remarkable growth has been attributed to the explosion of ecommerce developments and the transformation of the world’s communication and computing networks into an integrated broadband network. However, the rise of day trading and momentum investing has led to major market volatility and that, coupled with the Fed’s determination to tighten monetary policy, has left investors confused and nervous.

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Description: Lessons on Organization Part I: Deductive v. Inductive Structure explores how editing can enhance clarity without changing the content’s meaning. The article emphasizes the importance of using a deductive structure when editing to ensure cohesion and adhere to the Known-New Contract. The piece is related to current market developments, with a focus on the remarkable growth of the Nasdaq index due to ecommerce and communication advancements. It highlights the negative effects of day trading and momentum investing, along with the Fed’s determination to tighten monetary policy, which has led to market volatility. While the article’s content cannot be changed, it can be rearranged to enhance coherence. Finally, the post provides sound advice for investors on how to cope with current volatility by focusing on the basic principles of diversification, balance, and long-term orientation.

Objectives:

Students will gain an understanding of organizational writing.

Students will learn the difference between deductive and inductive structure in writing.

Learning Outcomes:

By the end of this lesson, students will be able to:

Define organizational writing and differentiate it from other types of writing.

Identify the differences between deductive and inductive structure.

Explain why deductive structure is best suited for the given text.

Recognize the importance of cohesion in writing.

Recognize the importance of adhering to the Known-New Contact.

Analyze the given text and rearrange or omit information to enhance clarity.

Apply the principles of diversification, balance, and long-term orientation to cope with current market volatility.

Predict the future US economy and stock market trends based on changes in monetary policy.

Solution 1:
Managing Market Volatility through Diversification and Long-Term Orientation.
The Nasdaq index has experienced an unprecedented 104% outperformance on a year-on-year basis. While this reflects remarkable, revolutionary fundamental developments, it also contributes to a market fluctuation that can leave investors confused and nervous. One way to mitigate the market volatility is through diversification, balance, and long-term orientation. Instead of getting carried away by momentum investing or day trading, investors can focus on long-term gains by diversifying their portfolio by investing in different sectors. By adopting a long-term orientation, investors can maintain a balanced portfolio that is not excessively skewed by the Nasdaq index performance.

Solution 2:
Balancing Risk and Reward in a Rapidly-evolving Technology Market.
The rise of technology stocks represents the biggest infrastructure development project in history by major corporations and premier technology firms. However, the rise of day trading and momentum investing has resulted in an increased market fluctuation that can cause confusion and nervousness among investors. Hence, investors must learn to balance risk and reward in a rapidly-evolving technology market. One way to achieve this is through diversifying the portfolio and adopting long-term orientation. While technology investing represents long-term profitable gains, it should be balanced with other sectors to minimize risk. Additionally, maintaining a long-term investment horizon can prevent unnecessary panic and overreacting to market fluctuations.

Suggested Resources/Books:
1. ‘The Intelligent Investor’ by Benjamin Graham
2. ‘One up on Wall Street’ by Peter Lynch
3. ‘A Random Walk Down Wall Street’ by Burton Malkiel

Similar asked Questions:
1. What is the basis of the Nasdaq Index?
2. How do current developments in the tech industry impact the stock market?
3. What is the risk associated with margin debt?
4. How can individual investors cope with market volatility?
5. How do interest rate hikes impact the stock market?

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