Knowledge without action is meaningless… why Luke believes nervous tech investors need to place their chips today… signs that a tech resurgence is gaining momentum

 

Knowing what’s right doesn’t mean much unless you do what’s right.

Though the quote comes from former U.S. President Theodore Roosevelt, our hypergrowth expert, Luke Lango, pointed out to his readers that the sentiment is particularly true for investing.

How many times have you considered an investment and thought, “that’s probably going to do pretty well,” but then, you did nothing?

Fast-forward a few years and you’re kicking yourself at what could have been.

(Anyone out there thinking about that opportunity you had to throw a few bucks at bitcoin back in 2014/2015?)

So, what’s the point here? Why begin today’s Digest like this?

Here’s Luke for that answer:

Because today, (taking action) matters more than anything else.

As you well know, the past few months have been rough for tech stock investors.

While the Dow Jones has surged to all-time highs, tech stocks have tumbled because of fears surrounding runaway inflation crimping already-small tech sector profit margins and rising yields pressuring already-extended tech sector valuations.

This has put growth investors – like you and me – in a peculiar situation.

We know that technology is the future of everything.

It’s painfully obvious to folks like you and me. We know electric self-driving cars are a future ubiquity. We know solar, wind, and hydrogen will power everything by 2040. We know that e-commerce will entirely replace malls, and streaming TV will entirely replace movie theaters. We know offices, gyms, and casinos are all being virtualized.

We know these things. They’re obvious.

But what good is knowing these things if we don’t do anything about them?

If we just say technology is the future of everything – and then don’t back that up by buying tech stocks on this dip – then we’re going to end up just like those folks who brag about how they loved Bitcoin back in 2014… but have nothing to show for it.

We want something to show for it.

Today, let’s refocus our perspective on where it should be – the long-term wealth-generating power of elite technology stocks.

With Luke’s help, we’ll flesh out the main reason why investors need to act on tech’s recent weakness. And not tomorrow, mind you, but today.

Or as Luke puts it to his subscribers…

Right now.

Yes. Literally right now. Today.

This very moment.

Let’s find out what’s behind the urgency.

***Economic data is slowing, causing 10-Year Treasury yields to fall, which is inviting more money back into tech

For newer Digest readers, Luke is our hypergrowth expert, and the analyst behind Innovation Investor. His specialty is finding market-leading tech innovators that are pioneering explosive trends, leading to huge returns for investors.

But as you’re likely aware, tech stocks have had a painful string of months. Those “huge returns” have turned into tough losses.

So, why is it time to buy tech stocks today?

Because the U.S. economic recovery is slowing.

That seems a bit counterintuitive, right? Perhaps, but Luke recently walked through the simple logic.

In short, in February, tech stocks began falling for one primary reason – rising yields. Specifically, the 10-Year Treasury yield shot up about 30 basis points in two weeks.

Now, why did yields rise?

Because the U.S. economic outlook was rapidly improving. As the recovery gained momentum, it increased inflation and growth expectations, drove up yields, and weighed on tech stocks.

But as Luke highlights, we’re now seeing the opposite happening:

This week, the Empire State Manufacturing Index for May came in at 24.3, versus expectations for a reading of 24.8. More importantly, that 24.3 reading is down sharply from the 26.3 reading in April.

By itself, that “miss and slowdown” isn’t big news. But it’s not by itself. It fits into a broader picture of economic data consistently missing expectations and slowing rapidly.

Remember the April jobs report? That was a big miss, which included much slower job growth than in March, and an actual rise in unemployment.

How about the ISM Manufacturing Index? Or Non-Manufacturing Index? Both big misses. Both down sharply month-over-month.

Retail sales? Missed by a mile in April. And dropped to essentially “no growth.” Same with consumer sentiment in May. Missed estimates by a whole bunch and dropped sharply from April.

Folks… these data are painting a crystal-clear picture here…

The economy is still improving. But the recovery is losing steam and momentum. It will continue to lose steam and momentum over the next few months, as pent-up consumer demand tapers off and a new economic equilibrium is established.

Into the end of 2021 and into 2022, the U.S. economy will be in “slow growth” mode.

*** “Slow growth” may seem like bad news for investors, but it’s actually the opposite

Fast growth is the bigger risk to tech stocks.

That’s because it leads to inflation, which eats at corporate profits… it forces the Fed into rate hikes to stamp out inflation… and those higher rates lead to slower growth and multiple compression in the stock market.

Back to Luke:

So, fast growth will lead to lower earnings and lower multiples, which of course means lower stock prices.

Slow growth will stymie inflation… boost corporate margins and earnings… keep the Fed on the sideline with easy money policies… and result in expanded valuation multiples.

Slow growth will lead to higher earnings and higher multiples, which of course means higher stock prices.

It should be no surprise, then, that as the economic data has cooled off over the past few days, tech stocks have bounced back in a big way.

To Luke’s point, if we look at the Nasdaq 100 index, we see it’s up more than 4% from its May 19th trading-session low. Meanwhile, the “old school” Dow, which has been the beneficiary of money fleeing tech in recent months, is up roughly half that over the same period.

***Two more reasons why “now” is the time to take action and be invested in elite tech stocks

Luke recently pointed toward two additional tailwinds behind tech. We don’t have the space to delve into them in detail in today’s Digest, so let’s jump to the takeaway for each.

The first point is that scarred, low-commitment bitcoin and altcoin investors will tuck their tails and return to the tech sector.

Here’s Luke explaining:

The same folks who buy cryptocurrencies would buy growth stocks. They’re higher-risk, long-term-return driven investors.

It should be no surprise, then, that as growth stocks have struggled over the past few months, cryptocurrencies have surged higher. Money was fleeing growth stocks and running into cryptocurrencies.

That dynamic appears to be reversing course now.

Over the past two weeks, cryptocurrencies have plunged, led by a whopping 40% decline in Bitcoin, on a variety of concerns ranging from valuation to environmental friendliness, to government restrictions.

Guess what has happened during this crypto decline?

Growth stocks have outperformed. As cryptos have dropped over the past few weeks, growth stocks have shaken out of their slump and powered higher.

For Luke’s third point, he highlights something we covered in yesterday’s Digest when evaluating Apple… valuations in tech stocks have pulled back substantially.

Luke walks through several holdings in his subscriber portfolio, noting their current price-to-sales ratios are far more in line with their five-year averages.

Here’s his takeaway:

Tech stocks were richly valued. Now they’re not.

With economic growth slowing, yields flattening out, and cryptocurrency hype dying down, these “normal” valuations provide a solid base for tech stocks to turn into the market’s biggest winners once again.

***The cost of not acting

In investing, there’s always a reason to be afraid. But we can’t let such fears control our actions or else we’d never act – or we’d settle for ho-hum returns.

On that note, remember the insightful quote from the great Rob Arnott:

In investing, what is comfortable is rarely profitable.

One quick illustration…

Back on March 22nd, we featured one of Luke’s Daily 10X stock recommendations. It was a small technology payments-disruptor company called MoneyGram, something Luke said looked like a mini-Square or mini-Paypal.

Here’s how MoneyGram’s chart looked at that time, beginning at the turn of the year.

Not great.

The tech selloff beginning in mid-February had shaved 40% off the stock price.

For a cautious investor, adopting a wait-and-see approach would have been the likely choice.

But here’s what’s played out for any Digest readers who acted on that issue…

Up 35% – despite having lost another 17% or so after we featured it in the Digest.

To be fair, we didn’t know MoneyGram would climb. And it could have fallen that 17% and then kept dropping.

But that’s where the proper long-term focus comes in – and is critical for tech investors to keep in mind today.

Here’s Luke with that focus, which we’ll end on:

Technology stocks represent the future, and the way to score life-changing returns in the stock market is by investing in the future. Folks who buy tech stocks today will be incredibly happy in 3, 5, 10-plus years…

As sure as the economic data continues to come in weaker-than-expected, this rebound will continue from strength to strength as investors retrain their eyes on the fundamental picture…

Stay the course. You’ll be very happy you did.

Have a good evening,

Jeff Remsburg