The Federal Reserve has been on a relentless drive this year to raise interest rates and bring demand down. The market has seen a streak of 75 bps hikes announced by the central bank to rein in the four-decade-high inflation.
One of the hardest-hit sectors has been technology. The S&P 500 Select Sector SPDR for technology has fallen 26% year to date as people have been driven away from growth stocks.
The tech-focused Nasdaq has fallen 28.8% in the same period. Higher interest rates impact the future cash inflows for growth companies like large-cap tech, as they have less funding for innovations. Despite this, whenever we have seen a green spell in the market this year, more often than not, it has been driven by investors’ faith in the futuristic value of tech stocks.
The technology sector thrived during and in the aftermath of the pandemic, as institutions and retail consumers have grown more tech-dependent and various erstwhile processes have been digitized. Artificial intelligence has been a focal point as companies have reskilled their workforces and optimized remote work capabilities.
It was the war in Ukraine and fears of an impending global recession that weighed in on the sector, but its resilience can be banked upon as we cannot imagine a world without investment in technology.
Also, recent economic data released has shown that the Fed’s tightening of monetary policy might have started taking effect and inflation may have already peaked in June. The jury is out on when the next time the Fed meets in December, whether they opt for a lesser, more assuring 50 bps interest rate hike, or continue with their streak of 75 bps hikes.
There seems to be an overwhelming consensus that the Fed might opt for the former, as it would want to be cautious about not landing the economy in rough waters.
To put things into perspective, even as the S&P 500 Select Sector SPDR for technology has plummeted through the year, it has turned around in October, growing 7.7%. With the three…
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