New York: The market is regaining its appetite for risk after a bitter 2022 as traders increasingly snap up some of last year’s biggest losers, particularly beaten down tech stocks.
Amazon.com and Nvidia Corp. are among the biggest contributors to the Nasdaq 100 Index’s 4.5 per cent gain this week. Amazon, which tumbled 50 per cent last year amid soaring interest rates and slowing revenue growth, rose 14 per cent for its best week since April 2020, while graphics chipmaker Nvidia also gained 14 per cent over the last five sessions.
Investors are becoming more optimistic that inflation will continue to cool, which would allow the Federal Reserve to soon pause interest rate hikes that triggered a valuation reckoning last year for growth stocks. The December consumer price index released Thursday was the lowest in a year, adding to growing evidence that the Fed is starting to tame inflation even as central bankers insist there’s more work to be done.
“This is the market saying that it is more optimistic that things are better off than periods of last year, when recession narratives were dominating,” said Nick Getaz, portfolio manager for the Franklin Rising Dividends Fund. “We’re not out of the woods, but maybe we can see the clearing of the trees.”
Evidence of rising optimism wasn’t limited to the biggest US tech companies. A basket of unprofitable technology stocks tracked by Goldman Sachs jumped 15 per cent this week. Software maker Atlassian Corp. surged more than 20 per cent, electric-vehicle maker Lucid Group rose 28 per cent and Carvana, the beaten-down auto retailer, soared 59 per cent.
Of course, not all tech stocks outperformed. Zoom Video Communications, Cisco Systems and Texas Instruments have all lagged behind the S&P 500 Index this week.
Franklin’s Getaz is skeptical that the rally can be sustained considering lingering threats to economic growth and the likelihood that interest rates remain elevated. He’s looking forward to the fourth quarter earnings season that commenced this week to see if corporate profit estimates can hold up.
“It’s fair to say it is too early for the level of uplift we’ve seen,” he said. “There’s more evidence for why you should be optimistic, but I’m not sure there’s enough evidence to warrant this level of strength.”