Tech Stocks Sink on Fed’s Beige Book Release. Why It’s a Buying Opportunity

What Happened to Tech Stocks Today?

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  • Technology stocks were trading around the flatline all day on Wednesday, March 14. Until around 2pm ET. When the Federal Reserve released its Beige Book publication, detailing the various Federal Reserve Banks’ outlook on the economy. The Nasdaq went from trading flat on the day, to dropping nearly 1% in a matter of minutes.

Why Did It Happen?

  • Tech stocks have been hyper-sensitive to inflation fears in recent weeks, and the Beige Book talked a lot about rising inflation.
  • Pretty much every bank said that many of the firms in its geography reported rising input prices for things like metals, lumber, food and fuel. These rises have been driven by a combination of limited supply (thanks to weather-related and Covid-related supply chain disruptions and production bottlenecks) and robust demand (thanks to the economy gradually reopening and unleashing pent-up consumer demand).
  • About half of these firms that are seeing sharp rises in input prices are absorbing the higher costs. The other half are passing on those costs to consumers, resulting in higher final prices and consumer-facing inflation.

Does It Matter?

  • The Beige Book doesn’t spook me. Yes, it talks a lot about inflation. But the underlying drivers of this inflation are all transient in nature.
  • Limited supply? You won’t get another big storm that shuts down Texas anytime soon. Covid-19 restrictions are being eased. Factories are coming back online in full force. The economic reopening that we are seeing all around us, will inevitably trickle into supply chains. Production bottlenecks will prove short lived. By summer/fall, most supply chains will be up and running at or near full capacity.
  • Robust demand? You’re seeing the first wave of pent-up demand be unleashed. I doubt this lasts much longer. The labor market remains challenged. Wages still aren’t rising. And for many folks across the country, a lot of this pent-up demand has already been unleashed since many parts of the country have been largely open for months now. Demand will increase in 2021, but at much more gradual pace than what many expect.
  • In other words, the supply/demand dynamics in the U.S. are presently very inflationary, but will soon become much less inflationary and perhaps even deflationary by the end of the year. The Fed will be proven right. Inflation will be transitory.

Tech Stocks to Buy Forecast

  • The huge intraday swing lower in tech stocks is a buying opportunity. Technology companies have all the earnings power in the market these days, as technology is quite literally taking over the world. The only thing holding back tech stocks has been fears of rising rates pressuring already extended valuations.
  • But it increasingly appears inflation will prove transitory, and that by the end of the year, we will be back in a sub-2% inflation environment. That means rates are going nowhere anytime soon.
  • If true, then tech stocks have a lot of runway to move significantly higher over the next 12 months. Near-term weakness = long-term opportunity.

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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s how his Daily 10X Report has averaged up to a ridiculous 100% return across all recommendations since launching last May. Click here to see how he does it.

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