Displaying items by tag: interest rates
Sure tech investors have had their share of ups and downs, but they have been largely insulated from the market’s bigger losses but things could change. The underlying trends in the technology sector are looking as bad as they have in a long time. There is severe weakness in consumer-oriented hardware products. Moreover, as supply chains relax these prices could fall further. Additionally, sub-sectors such as enterprise tech spending are starting to deteriorate. The weakening demand is beginning to show at the company level as earnings season shows signs of weakness in technology. While there have been outliers such as Cisco, the market might not be ready for widespread tech deterioration.
Finsum: The other huge problem is rising interest rates and rampant inflation which lower the value of future earnings and make growth stocks less attractive.
Bank stocks have had somewhat of a rough time this year. Like the rest the of the market they have been subject to turbulence. However, Barron’s says that clear sailing might lay ahead, as the stocks are looking less risky and likely to have more gains. The reason why is that bank stocks have been showing less and less beta lately, meaning they are trading at less relative volatility to the market than previously. This will lower their cost of capital and keep things steadier as rates rise, which will be bullish for performance. According to one research analyst, “Higher rates will have a positive impact on earnings, loan growth appears to be picking up, and we expect further regulatory relief”.
FINSUM: Given that higher rates improve net interest margins for banks, and the fact that there is significant regulatory relief occurring, we are feeling optimistic.