Thursday, February 2

Inflation digs into the wound of technology


The inflation It continues to occupy a large part of the market conversations, and given the different signals sent by the central banks in their attempt to stop it, the technology companies listed on the stock market suffer the ups and downs of each new news.

It was not even two months ago that omicron became the determining factor in stock markets, but that time now seems far away for investors who are more concerned about how monetary policy decisions will affect their portfolios.

A victim of this uncertainty, the technology index Nasdaq it lost 2.5 percent during the day on Thursday that left it at 14,806 points, its lowest record since October last year, and in the session on Friday it opened with a slight drop of 0.3 percent.

In general terms, however, experts do not believe that an inflationary environment will limit the growth of technology stocks in the long term.

NASDAQ 100 (QQ)NASDAQ 100 (QQ)

115,900,75 %

15.611,50

Inflation not so transitory

The transitory inflation that so long has defended the President of the European Central Bank, Christine Lagarde, has undoubtedly been installed in the most global economy for a longer period than the central banks of all countries would have preferred.

The positive note to inflation records that, for example, in Spain closed the year with a CPI increase up to 6.5 percent, is that December data in countries like U.S suggest that the inflation drive is peaking. This, despite the fact that the 7 percent reached in the North American country in December is the highest level since June 1982.

That’s how he thinks, at least. David Kohl, chief economist of Julius Baer, which indicates that the monthly growth rates of consumer and producer prices have slowed down in USA, as energy prices have stabilized.

Despite this call for calm, Kohl warns that inflation will continue to be driven by supply bottlenecks and strong demand. And for this reason, he considers that “political pressure on the Federal Reserve to change its extraordinarily easy monetary policy will remain high in the coming months.

Uncertainty drags technology

The pressure on the Fed to raise its tone in the face of the threat of inflation, however, has been the trigger for technology stocks to suffer a major setback in recent days.

“The rhetoric of fed officials weighed on stock markets on Thursday. Market expectations have changed rapidly in recent days, now expecting up to four rate hikes this year, as well as the start of quantitative tightening (i.e. balance sheet reduction) in July to curb inflation.” Matthew Redeem, director of equity strategy at Julius Baer.

Redeem explains that “although historically the cycles of rises in the Federal Reserve have not derailed the bull market, equity returns have tended to be lower and have been driven primarily by earnings growth rather than appreciation.”

In this context, the analyst Julius Baer He concedes that a shift associated with rising bond yields typically triggers a rotation from growth stocks, such as tech, to value stocks. But he argues that, in the short term, it is difficult to program these rotations.

For this reason, he believes that the long-term outlook continues to favor growth stocks.

Growth after the pandemic

From Fidelity, meanwhile, offers a similar prognosis.

“Some are concerned that tech stocks will underperform cyclical/undervalued areas in a more inflationary and rising interest rate environment, but the strength of many companies’ pricing power suggests these concerns have been exaggerated,” he says. Hyun Ho Sohn, fund manager FF Global Technology Fund from Fidelity.

I have Sohn considers that, in general, technology companies have scope to pass on the increase in production costs to customers without appreciably damaging demand, and points out that currently, the demand for technological solutions and products for consumers, companies and public administrations is real and continues to be higher than the offer.

“Furthermore, the recent pandemic highlighted the huge importance of technologies to our personal and work lives. We could see some setbacks in equipment markets post-COVID (people may choose to spend on experiences such as leisure and travel, instead of devices), but, in general, we all depend more and more on technology”, indicates the manager.

For that reason, I have Sohn notes that its investment process remains focused on identifying companies with strong end markets, strong fundamentals and reasonable valuations.

“I don’t have high-growth stocks in my portfolio that don’t make a profit and have borne the brunt of recent declines,” he says, adding:

“Overall, the technology market does not look excessively expensive, neither from a relative nor a historical perspective. This situation is even clearer after the latest correction. However, there are areas of the market that are unquestionably expensive.”



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