Tech Price Action Blazes
The interest rate that impacts tech stocks the most is the federal funds rate, and that’s important to know for readers.
The Federal Reserve is the body of an unelected group of so-called economic experts who mostly have never had a real job or never have had experienced running a company in their life.
Outsized control is given to these decision makers to decide at what interest rate banks and other similar institutions can lend money.
The biggest news nugget not chatted about lately is how the expectations for future Fed Funds interest rates has collapsed from 5% to 4.75%.
Only 2 more quarter-point increases from here and then we are done and dusted and ready for a reverse in policy.
This is why tech stocks have bolted out the back of the stable to start the year.
The setup is incredibly dovish and the price action so far this year has been overwhelmingly positive.
Many traders believe that inflation is decelerating and are taking advantage of this theme by buying tech stocks in the short term.
The outsized beneficiaries in the short term are the tech stocks that went down the most on the way down like video-conferencing technology firm Zoom Video Communications (ZM).
The Friday snapback meant that ZM rose 6% and other similar growth stocks felt the same wicked price action to the upside.
Fintech company Square (SQ) also rose 6.6% representing a nice reprieve from the constant onslaught of weakness in share price since November 2021.
The bright start to tech in January has a lot to do about positioning with many traders previously stationed for a sharp fall in equity prices.
However, the 800-pound gorilla in the room now is China which has reversed policy and is now open for business.
The shuttering of the failed lockdown policy in China is highly bullish for tech stocks and general equity sentiment.
Chinese consumers who go abroad are big spenders and an open China will translate into meaningful demand for tech software, hardware, products, and raw materials.
Get ready for all the large metropolitan areas around the Western World and Asia to be flooded with cash-rich Chinese who have had 3 years to dream about where and how to spend their cash.
This will easily translate into increased purchases of not only second homes on the French Riviera and Zermatt, Switzerland, but shiny new iPhones, new Teslas, new software for their social media businesses, and the ancillary software needed to manage their businesses like Mailchimp, Wix, Slack, Wave Accounting, Trello, and so on.
These larger macro trends can feed into big tech even if some of them have no direct input.
Luckily, traders are chomping at the bit for the Fund Funds rate to flatten then reverse lower and that will equate to a monster rally into battered tech stocks.
The first week of tech strength is just a preview of what will happen later this year as tech goes from ice cold to the hottest asset in the equity markets.
As positioning goes, traders and investors should be skewed towards a quick upwards burst in price action.
There will be a time to sell this rally and take the other side as well.
Positioning from the short and long side is essential to securing alpha in 2023.
Don’t believe anyone who says you can just buy and hold or permanently sell to buy lower as a legitimate investment strategy, because that ship has sailed. The death of straight line investing is upon us.
New investors should start small and build up positions instead of betting the yurt during a massive deleveraging moment in tech stocks.
Consensus is moving towards a “soft landing.”
