In recent months, the relationship between economic data and the value of technology stocks has been a fascinating mystery.
You may imagine that positive job reports, for example, would lead to more economic optimism and, as a result, higher technology stock prices. You might also expect negative economic statistics to lead to overall economic pessimism and, as a result, a decline in technology stocks. Because technology is such an important aspect of today’s economy.
No way. Yes, in some ways, but no, in others.
There was a cloud hanging over the markets ahead of today’s jobs data. The Federal Reserve of the United States, in particular, will begin to tighten monetary policy this year, possibly by ending its bond-buying programme, reducing its balance sheet, and hiking interest rates. Bonds and other lower-risk investments will become more appealing when the Fed raises interest rates. At the same time, given the risk-adjusted return evolution, higher rates are projected to make pricey tech equities less appealing.
Considering that dynamic, you may anticipate a strong employment report today to lead to a drop in tech stocks, and a weak jobs report to lead to a rise in tech stocks. That was virtually the case. The December jobs report fell short of forecasts (199,000 net new jobs were announced, or approximately half of expectations), and tech stocks immediately fell. The Nasdaq is up 0.34 percent, while the Dow Jones Industrial Average is down a little, and software stocks are up roughly 0.8 percent.
Why has the value of IT stocks dropped and then risen?
Concerns have been raised that we have effectively attained full employment. This could indicate that the weak December jobs report was caused in part by a lack of labour supply as well as a lack of employer demand. (Of course, the reality that we are still in the midst of a global pandemic influences this dynamic.)
As a result, we find ourselves in a strange situation in which a weak jobs report could indicate that the economy is stronger (closer to full employment) than expected, implying that wages and prices will continue to grow, prompting the Fed to hike rates. As previously said, higher-risk assets would drop off, while lower-risk assets would become more appealing. Despite this, tech stocks are slightly higher since it looks that the markets have decided that the mediocre report will turn out to be a plus for tech stocks, which have been on the down in recent weeks. Or, in essence, that a weak employment report will be less Fed-provoking than a great jobs one.
Subtly charming pop culture geek. Amateur analyst. Freelance tv buff. Coffee lover