Tag: reversion

Big Tech is suffering from ‘mean reversion.’ And the downdraft isn’t over yet

By iwano@_84

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chart, histogram


© Andriy Onufriyenko


No force in financial markets is as powerful and predictable as “mean reversion,” the tendency of stock and bond prices that are extraordinarily high or low versus history to return to their long-term norms. The big drop we’re now seeing in tech shares looks like a classic case in point, as economic gravity takes charge, pulling high-flying prices closer to where they’ve traditionally hovered relative to earnings. We’re hearing sundry explanations for the fall—”a second lockdown is on the way,” “chances for new stimulus are fading,” or “the trade war with China is endangering Big Tech”—but the one that makes the most sense is most basic: mean reversion that comes and goes, but always comes again.

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