(Bloomberg) — Tech stocks — which are among the most-sensitive groups to Federal Reserve’s policy moves — are beating the broader market Tuesday after a weaker-than-estimated consumer price index raised hopes officials will ease their tightening stance.
(Bloomberg) — Tech stocks — which are among the most-sensitive groups to Federal Reserve’s policy moves — are beating the broader market Tuesday after a weaker-than-estimated consumer price index raised hopes officials will ease their tightening stance.
Facebook parent Meta Platforms Inc. soared 4.5%, while a gauge of megacap firms including Alphabet Inc. and Netflix Inc. jumped as much as 5.2%. Chipmakers, which are some of the biggest losers this year, also enjoyed a powerful rally. These moves were part of a concerted effort that took the Nasdaq 100 up almost 4% earlier in the day. Rising Fed rates and inflation make the value of future profits in tech less appealing.
“A soft CPI print inherently means a dovish Fed,” said Gareth Ryan, managing director at IUR Capital, said in an email. “The riskiest parts of the stock market are the most sensitive to changes in the rate environment.”
The CPI print validates the Fed’s projected half-point rate increase on Wednesday — after four straight 75 basis-point hikes — and sets the tone for future decisions.
Read: Fed Doves’ Case for Rate Pause Bolstered by Inflation Slowdown
The Cboe Volatility Index dropped to 23, while putting Wall Street’s chief fear gauge below this year’s average of 25.8. A measure of expected swings in the VIX fell below 90.
To Greg Bassuk, chief executive officer at asset management firm AXS Investments, November’s CPI print should help ease looming recession concerns over the Fed’s aggressive policy to curb inflation, but he expects volatility to pick up in the coming weeks and months as investors assess Fed policy.
Although his more experienced clients are snapping up shares of tech and so-called growth stocks in the short-run including Tuesday and possibly over the next week, he’s still advising caution for long-term investors. He suggests having exposure toward defensive cyclical and value companies that can hold up better in elevated inflationary environments.
“While this is a breath of fresh air, this is still a single data point,” Bassuk said. “Investors need to strap on their seat belts because we expect more volatility until there is a greater consistency with inflation data as we move into 2023.”
Over the next few months, he’s waiting to see a pattern emerge where inflation data, corporate earnings and geopolitical developments all point to a single trajectory that shows a balance of a healthy growing economy, including one where prices can be contained.
“This is definitely a welcome surprise for investors,” Bassuk said. “There’s no question this data will take pressure off the Fed, but what the inflation figures show in the coming months in terms of the trajectory of prices is crucial for how investors will position themselves.”
Investors are turning less negative on equity risk, according to Bank of America Corp.’s latest fund manager survey. The bank’s FMS Financial Market Stability Risks Indicator eased from 8.5 to 5.6 — a “turning point for risk aversion,” strategists led by Michael Hartnett wrote in a note dated Dec. 12.
A record net 90% of fund managers think that global inflation will be lower within the next 12 months, with investors expecting US CPI inflation to be 4.2% in the next 12 months, according to BofA.
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