Market volatility is just a sign that investors are resetting their expectations — and it’s nothing to be afraid of, The Carlyle Group’s Glenn Youngkin told CNBC.
“This volatility isn’t the beginning of the end, it’s just natural volatility as people reset expectations,” the co-chief executive officer of the investment firm told CNBC Europe’s “Squawk Box” on Tuesday.
His comments came after sharp declines in U.S. stocks on Monday. The Dow Jones Industrial Average fell 602 points after a decline of 5 percent in Apple shares, a rise in the U.S. dollar — which could dampen overseas sales for multinationals — and worries about global trade disruptions.
The tech-heavy Nasdaq Composite declined 2.8 percent, easing back into correction territory. The S&P 500 fell 2 percent. The rout in tech stocks started when Lumentum Holdings, which makes technology for the Apple iPhone’s face-recognition function, cut its outlook for the fiscal second quarter of 2019 and said one of its largest customers asked the company to “materially reduce shipments” for its products.
The damage was not contained to Apple alone, however, with the other companies among the so-called FAANG stocks — Facebook, Amazon, Netflix and Google — also experiencing dropping by varying degrees of between 2 and 5 percent on Tuesday.
Youngkin said investors are starting to scrutinize tech stock valuations more closely.
“The tech sector has been valued under this expectation that, again, trees are going to grow to the sky, and we’re going to sell more and more and more of everything in an unlimited fashion,” he said. “And so, all of a sudden, people are beginning to recognize that maybe valuations got ahead of where they probably should have been and they must reset.”
The International Monetary Fund forecast in October that the U.S. economy would grow 2.5 percent in 2019. Youngkin said The Carlyle Group was slightly more optimistic, predicting GDP growth of between 2.5 percent and 3 percent. He said that would bode well for sectors, like tech, that “find their demand principally driven by confidence in the consumer.”
He questioned the idea that lower growth will lead to lower earnings, saying that “the concept of slowing growth does not mean declining earnings … Headlines are always that things are declining, but they’re not,” he said. “Growth is slowing.”
Youngkin added that a moderation of the growth rate was normal.
“Over the course of the last 12-18 months, most people have felt like the economy was going to grow to the sky and all of a sudden we have this very natural slowing of growth – not stalling – and the markets are appropriately resetting.”
– CNBC’s Fred Imbert contributed reporting to this story.
