Rates Continue to Rise, Tech Continues to Slide

Major indices were down this week as interest rates continued to push higher. Thursday saw the biggest down day of the week, with the Nasdaq 100 and the small-cap Russell 2000 indices dropping roughly 3%. Bonds stabilized a bit today giving a lift to stocks. On Wednesday the Jerome Powell, the Federal Reserve chairman, spoke following the Fed’s two-day policy meeting. He addressed the rising rates and remarked that they are notable, but that the Fed has no plans to step in to halt the rise. Powell also announced that the Fed expects the US economy to grow at 6.5% in 2021. This is a substantial increase from its December projection of 4.2%. The Fed also expects inflation to come in at roughly 2.3% for the year. Much of these projections, in a vacuum, would be bullish for stocks, however the market seems to grow anxious of rising rates and the prospect of less monetary support from the Fed. Powell didn’t indicate any change in direction, but the market frequently tries to get out in front of any future changes the Fed may make.

In the near future, much depends upon the path of the 10 year US Treasury bond. Should rates begin to show signs of bottoming in the short run it would seem likely that the stock market, in general, and tech stocks, specifically, will benefit. Given the fact that rates have risen so much, so quickly, a pause and a relief rally for bonds is not out of the question.

Thanks for reading,

Zach and Dave

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