Here is a recap of our live Q&A session held on 2/26/21 presented by Joe Randazzo JD, CFP® from FNA Wealth Management and Dave Stone CPA, CFP® from Tartan Wealth Management.
Details for our next session, 3/12/21, can be found here.
What do you believe is causing technology stocks to retreat recently? Do you see this continuing?
We see a few reasons for the recent pullback in technology stocks:
- The tech sector has performed remarkably well since the start of the pandemic. Profit taking in these stocks is likely part of the pullback.
- Rising interest rates provide investors a potential alternative to investing in stocks as bond yields are more attractive.
- Rising interest rates and the fear of inflation make earnings of technology shares less valuable and would impact their share price outlook.
- A rotation from tech to more value-oriented stocks (i.e. energy and financials).
We believe that certain tech stocks are running a little too hot and they may be quite volatile when the fear of inflation exists. The Fed has reiterated that inflation is not a near term problem. This should ease the minds of tech stock sellers. There may be some opportunities to buy some tech names that have pulled back due to these inflation fears.
What is your forecast for the markets in 2021?
As we have spoken about in the past we believe that the market will continue to celebrate good news on the vaccine front. We are seeing positive COVID cases, hospitalizations, and deaths plummet since the spike at the end of the year. These trends have continued to brighten the outlook for an economic rebound. The vaccine news coupled with another expected round of stimulus($1,400/person) should provide a bump to the economy in the 2nd quarter. This expected growth should continue to benefit the economically sensitive stocks and small company stocks. This has been the trend so far in 2021. If the market continues its upward trend we could get into a situation of stretched valuations of equities that may lead to a correction later in the year. If we see a correction it may be one that is needed as valuations have expanded significantly. In summary, we think the markets should post another solid year in 2021. Towards the end of the year the talk will likely be of higher taxes in 2022 which may warrant some portfolio adjustments. Stay tuned.
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss.
Value investments focus on stocks of income-producing companies whose price is low relative to one or more valuation factors, such as earnings or book value. Such investments are subject to risks that their intrinsic values may never be realized by the market, or such stock may turn out not to have been undervalued. Investors should carefully consider the additional risks involved in value investments. Small cap stocks may be subject to a higher degree of risk than larger, more established companies’ securities, including higher risk of failure and higher volatility. The illiquidity of the small-cap market may adversely affect the value of these investments so those shares, when redeemed, may be worth more or less than their original cost.