Disruptive technologies and its influence on our financial markets

How To: Disruptive technologies and its influence on our financial markets

As we know companies in the technological sector have a considerable influence on our contemporary society. Innovations in the field of tech punctuate our daily life but also the economy. Do major technological advances or innovations influence the share price of other stocks? We asked ourselves the question.

Disruptive technologies and its influence on our financial markets
Disruptive technologies and its influence on our financial markets
Uber and Amazon, two different stories

In the world of technology stocks, there are two main categories of companies. There are those like Uber who went public because of their disruptive business model and there are also those who have waited for their time like Amazon. Jeff Bezos' company has been listed on the stock exchange for more than 20 years, but its success story for investors only started a decade ago when e-commerce became widespread.

The two companies have one common denominator, however: the creation of disruptive technologies that have changed the way our society works. This characteristic is valid for most large technology companies.
Disruptive technologies and its influence on our financial markets
Disruptive technologies and its influence on our financial markets

Contrast in stock indexes

The omnipotence of tech companies is moreover cruelly reflected in stock market indices. If we take the historic American benchmark index, the Dow Jones Industrial (DJI), the real-time future prices of US stocks have risen by around 60% over the last five years. The Dow Jones US Technology (DJUSTC), index increased by around 150% over the same period. Technology stocks are therefore more volatile than stocks in other sectors. They are one of the engines of American growth.

Influence of technological advances on the company

If there is a correlation between the launch of a new product or a new technology and the stock market price, this is not always obvious. However, there is indeed a cause and effect link. The Apple Company which is part of the Dow Jones index is an excellent example of this phenomenon. If we analyze the stock market variations following the launch of a new iPhone, two conclusions are imperative. On the one hand, at the time of launch as such, the stock market price is often little influenced or even slightly influenced downward. 

This is explained by the fact that investors have generally already been perfumed via rumors or other indicators. The surprise effect is therefore greatly diluted. On the other hand, if we look at the evolution in the two months following the launch, most of the time we see an increase in the share price above 4%. On the other hand, in the case where the new model disappoints, the correction is often important. The launch of the iPhone XS, for example, lowered the share price by 20%. The markets are therefore very hard with the losers.

Influence on other listed companies

If technological advances or the launch of new products can have a direct influence on the stock market prices of competing companies (for example Samsung in the case of Apple), the link is less obvious compared to companies in other sectors. However, we see that disruptive technologies have long-term effects on different segments. The rise of Amazon, for example, has had a major impact on mass market specialists. Companies like Walmart have seen their growth prospects diminish. The automotive sector is also at a turning point with the arrival of players like Tesla in particular.

In addition, it should be borne in mind that technological advances have changed the financial markets as such. These are now more accessible and more responsive thanks to the tools available to professional and amateur traders. Access to information therefore helps to make sense of things and avoid a snowball effect on the markets following the arrival of disruptive technology.


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