Technology stocks are showing some signs of life to start 2023 as the tech-heavy Nasdaq-100 Index (NDX) is higher by 3.33% to start the year. That’s a welcome sign for investors chastened by last year’s weakness in the previously high-flying sector. Still, some market observers contended headwinds remain for technology equities in 2023. On the other hand, a case can be made the factors weighing on technology stocks and exchange trade funds such as the Invesco QQQ Trust (QQQ )+ and the Invesco NASDAQ 100 ETF (QQQM ) are beyond companies’ control. Those include inflation, rising interest rates and the strong dollar — a drag on export-dependent tech firms — all of which are intertwined.
“Rising interest rates represent the single biggest factor driving the current tech slowdown, many observers agree reports Scott Rosenberg for Axios.
While there’s no denying that rising interest rates — the Federal Reserve boosted borrowing costs seven times last year — hampered tech stocks owing to the group’s long-term cash flows, that doesn’t mean the underlying fundamentals of the sector’s stronger constituents have been dramatically altered.
Nor does tightening of monetary policy imply that the trajectory for disruptive technologies is in danger. In fact, many of the innovative technologies purveyed by QQQ and QQQM members, including artificial intelligence, fintech, healthcare innovation and more, are still supported by attractive long-term outlooks exclusive of Fed action.
“Financial tides explain the beating tech is now taking — much more so than the product cycles and platform shifts that occupy so much of the industry’s attention,” adds Axios. “Tech companies and products didn’t suddenly become less useful or valuable overnight.”
To be sure, QQQ and QQQM are backed by some wide moat companies with strong balance sheets and enviable brand recognition. Those include top holdings Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), just to name a few.
Currently, some QQQ and QQQM are focusing on cutting costs in the form of sizable layoffs. That could allay investors’ near-term concerns about keeping some powder dry in the event a material recession arrives later this year. While the layoffs recently unveiled by the likes of Amazon and Microsoft are eye-popping in size, prudence is of the essence for QQQ and QQQM components and right-sizing of headcounts is one way to exercise that prudence.
“It doesn’t help that so many firms expanded and hired too fast during the (coronavirus) pandemic.,” concludes Axios.
For more news, information, and analysis, visit the ETF Education Channel.
