The Glass House – The Tech Industry Shows Cracks
From the start of the year to date, the Nasdaq Composite, the 2,500 company-strong index, has yielded a return of an astounding 32%. In the last ten years, the gold standard for market performance, the S&P 500, has given a relatively strong 12.39% annually. Now why has the Nasdaq performed historic returns in only a matter of nine months? The Nasdaq’s portfolio is majority comprised of technology companies, holding over 55% of the weight of the index. With the rise in talks surrounding artificial intelligence, technology companies have gotten a favorable boost in value, with investors pricing in predictions for future performance strides made through AI. Even the tech-exclusive Nasdaq-100 Technology Sector has shown year-to-date returns of over 41%. As the past few weeks have shown losses for broader markets, several now fear these expensive tech stocks may be due for a value correction.
Alongside the gamble in AI, investors flooded heavily into tech stocks throughout 2023 in hopes of rate cuts soon to come. If inflation remained on a steady path downward, the Federal Reserve would eventually cut rates, which would in turn boost fiscal performances for several of these companies. However, hotter-than-expected reports of core-CPI and retail sales for August may sound a different tune on the state of the economy. Post-pandemic resiliency has driven a robust economy that has left several industries interest-rate insensitive in the interim. As per usual, interest rates and anything on the matter will have a significant effect on market performance, and this coming meeting may shift the tides for tech. Being down from 81% last month, investors are now nearly split 50-50 to a lower Fed target rate by June 2024.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.