According to economists, the central bank would increase interest rates by 75 basis points to address the inflation crisis. Although increased rates have been the main obstacle for tech stocks this year, investors claim that the policy course is now anticipated, particularly in light of the declining consumer inflation expectations that suggest the Fed may be able to be less aggressive.
Additionally, two tech sector titans are encouraging investors: Late on Tuesday, Alphabet Inc. (NASDAQ:GOOGL), the parent company of Google, reported robust ad revenue, while Microsoft Corp (NASDAQ:MSFT). Provided an upbeat sales estimate. Alphabet (NASDAQ:GOOGL) gained 3.2 %, Microsoft (NASDAQ:MSFT) gained 3.7 %, and the Nasdaq 100 index increased by 1.5 %.
The lead portfolio strategist at Natixis Investment Managers, Jack Janasiewicz, said that the market is comfortable with the path of hikes. If rates stabilize here, that should be a good backdrop for growth stocks to come back again. Jack has been selling energy stock gains and switching to the technology sector while advising investors to invest more money in the area.
Janasiewicz also said that since the Fed is a recognized entity, earnings would be crucial for the market. He is concerned with how margins are faring in the face of inflation and how much room there may be for revision to consensus estimates.
The Nasdaq 100 has crossed over its 50-day moving average for the first time since April, a promising sign for near-term momentum after rising 10% from its June low. Although it continues to be down by roughly 25% for the year, it is on course to post its most considerable monthly percentage rise since October. The 10-year Treasury’s yield is currently at 2.8 %, down from a top of about 3.5 % in June.
The week before the Fed’s meeting is a busy one for earnings. This week, reports are expected from Facebook parent Meta (NASDAQ:META) Platforms Inc., Amazon.com Inc. (NASDAQ:AMZN), and Apple Inc. (NASDAQ:AAPL). According to statistics gathered by Bloomberg, over 80% of technology companies in the Nasdaq 100 have so far this earnings season posted better-than-expected earnings and revenue.
Of course, earnings and corporate outlooks continue to be significantly influenced by the macroeconomic environment. The CEO of corporate software provider Appian Corp. (NASDAQ:APPN), Matt Calkins, is so worried about inflation that he wants the Fed to be very aggressive and raise rates by 100 or 125 basis points.
He said in a phone interview that they need to either get inflation back in the box, down to 2% again, or they will need to end up with some long-term acceptance of higher inflation. A recession is inevitable, and the main issue is whether they will still have inflation on the other end, he added.
Some investors, too, are concerned that the full impact of a slowing economy brought on by rising rates is not yet fully reflected in earnings predictions and stock prices. The Nasdaq 100 is trading somewhat higher than the 10-year average at 20.8 times anticipated profits.
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