Stock market volatility dominated conversation this week, beginning Monday morning (now being deemed "Black Monday") when China's Shanghai Composite index saw an 8.5% drop, triggering global markets to plunge and hinting at cracks in an otherwise sturdy U.S. economy.
"The stock market often foreshadows the health of the economy six to nine months down the road," wrote Paul J. Lim, assistant managing editor at Money. "If equities were to slip into a bear market -- they came close on Monday -- investors would naturally begin to wonder if the U.S. economy is on the verge of another recession."
There may be some good news, however. After U.S. stock markets saw a steady rebound Wednesday and Thursday, many are hoping there's an end in sight for the correction. But don't breathe a sigh of relief just yet; market strategists expect daily volatility to continue in the coming weeks as investors adjust to last week's plunge, according to The Washington Post.
Should CIOs be worried?
With all the stock market instability this past week, should CIOs be worried about pressure on their IT budgets? One analyst suggests no -- as long as China’s economic woes don’t drag down the world economies.
Andrew BartelsForrester Research Inc. analyst
"The short answer is that this week's stock market declines are not big enough or long-lasting enough (yet) to have any impact on tech spending," Forrester Research Inc. analyst, Andrew Bartels, wrote to SearchCIO in an email. "To the degree that China's stock market declines are evidence of broader economic weakness -- that could lead to a global economic slowdown. Remember, it is the economy that drives tech spending, not the stock market."
And, the second-quarter U.S. GDP report, issued Thursday, shows good growth so far this year, with the U.S. economy growing at 3.7% annual pace in the second quarter, up from initial estimates of 2.3%, the Department of Commerce said Thursday.
But, some observers caution that mere volatility in the stock market affects every business, both public and private, in a number of ways, including funding.
"Even the deals that do come will be smaller," wrote Ray Hennessey, editorial director of Entrepreneur.com. "Private-company valuations generally follow public-company ones. … If tech companies on the Nasdaq suffer a Black Monday, it will be a Grey Tuesday for private companies seeking venture money."
Another factor that may impact businesses in the wake of this week's stock market instability is that in times of market uncertainty, people tend to cut back their spending, according to Hennessey.
The connection between those factors and IT budgets? If your company is in the midst of raising funds and has to pay more to borrow money, it ends up in a price war with competitors; if your customers start curbing spending, cuts to company spending could be made, and it might be your 2016 IT budget that's on the list.
As Hennessey contends, Wall Street is at the heart of the business ecosystem; and if there's a problem with the heart, there's bound to be some repercussions -- whether minor or major -- to the rest of the body.
How are tech companies faring in all this?
"Tech is both a bellwether and a darling of the stock market as well as society in general," Mark Mullen, the managing partner of Double M Partners in Los Angeles, told TheStreet. "No matter where you are these days, Shanghai to Seattle, major fluctuations in the market will affect you if you are in tech."
That rang true as the stock prices of nearly all –big-name tech companies -- most notably Facebook, Apple, Amazon and Microsoft -- took a hit this week. Many are especially concerned with Apple's position in the wake of the correction. Last quarter, 27% of Apple's entire revenue came from China, as did 50% of Apple's revenue growth, according to Vox. The company's stock chart even produced the dreaded "death cross," which some think marks the spot where a short-term decline turns into a longer-term downtrend.
Apple's not the only tech company that took a hit. Alibaba, the Chinese e-commerce company, dropped below its initial public offering price of $68 for the first time ever. As reported by Financial Times, Daniel Zhang, chief executive at Alibaba, has told employees to "forget about the share price" and focus on their jobs.
Some are worried that the stock market instability may deter tech companies from going public any time soon, especially considering how much harder recent tech IPOs were hit compared to the overall market.
The most important question is whether this is a temporary rough patch or a sign of worse times to come.
CIO news roundup for week of Aug. 24
Here are more technology headlines from the week:
- Google rejects claims from the European Commission that it skewed Internet search results in favor of its own shopping service. Google's general counsel called the preliminary conclusions "wrong as a matter of fact, law, and economics." If found guilty, the tech giant could face a hefty fine to ensure deterrence, according to the Commission's charge sheet seen by Reuters.
- Microsoft's Windows 10 adoption continues to outpace analyst expectations as Yusuf Mehdi, Microsoft's corporate VP for the Windows and Devices Group, tweeted this week that the OS has been downloaded onto more than 75 million devices less than a month after its release. The Windows Store for Windows 10 app store has seen six times as many app downloads per device than Windows 8, Mehdi said.
- Those looking to get online during their flight will have to dig deeper into their pockets. The New York Times reports that in-flight Wi-Fi prices from Gogo, the largest provider of the service, have surged with increased demand. Some prices are as high as $40 for service during a U.S. transcontinental flight.
- Robocops might not be making an appearance anytime soon, but drone cops might. Local police in North Dakota want to be the first in the country to arm drones with nonlethal weapons, most notably Tasers and tear gas.
For more on IT budgets, read about demand shaping vs. demand management and find out how the Walgreens CFO tripled technology spending