For anyone thinking of putting their money in tech, we have some unpleasant news: this may not be the best time to invest in it.
As of mid-August, the NASDAQ was fairly static. Growth was pegged at a paltry 0.1% compared to how the exchange has been rallying throughout the first half of 2021. Market watchers have also noted the ho-hum performance of the exchange’s top 100 big-cap companies for much of the month.
Investment experts and analysts attribute this tech exchange flatlining to how US Treasury yields have been trading without a clear direction. Usually, Treasury yields are a pretty reliable barometer of market performance: whenever they spike, the NASDAQ drops; when it drops, the exchange rallies – but not this time.
It is possible that things may change once the US Federal Reserve dictates a clearer direction. According to UBS chief economist Paul Donovan, the anticipation surrounding the latest Fed report has ratcheted to an almost-fever pitch.
“The Fed is moving [to scale back] its bond purchases,” Donovan said, adding that the next questions would be by how much and, more importantly, how soon. He further stated that the timetable could begin with discussions on potential solutions during the Federal Reserve’s annual summer camp in Jackson Hole slated for later in August, followed by an official statement or decision in the fourth quarter of this year and actual action after that.
How does this affect the market?
All this anticipation and general nervousness regarding the upcoming release of the Fed minutes is expected to impact both tech stocks and bond yields over the next few weeks.
Speaking of tech stock, investors are beginning to think that these are starting to grow a bit too big for their breeches. Tech stock prices have been rising steadily over the past month or so. Therefore, market watchers think that the pricing is getting out of hand and that it may be a good time to reposition.
For his part, Sanders Morris Harris chairman George Ball opines that the tech sector has been rotating away from traditional FANG (the collective acronym for Facebook, Apple, Netflix, and Google) stocks for several months now. Instead, companies and individual investors are getting into newer and smaller tech stocks.
Indeed, the FANG+ Index, which monitors these big players and high-performing tech firms, has been down by 2.2% for the past month and has actually fallen by 3.5% over the past six months.
However, many investment portfolios continue to be tech-heavy though many investors are beginning to rethink their decisions in that respect. According to some analysts, the next areas for growth may be healthcare, utilities, and insurance.