Last Thursday, shares in Facebook parent company Meta (FB) plunged 26%.
This wiped $240 billion from the company’s market value.
That’s more than the market value of Nike (NKE) – worth $229 billion – going up in smoke in one day.
And Meta isn’t the only tech stock that’s been headed south. We’re seeing selling pressure across the sector.
The tech-heavy Nasdaq is down 12.5% from its peak last November.
And with fears swirling over the Fed ending the era of cheap money… there’s no shortage of doom and gloom in the mainstream press about the tech sector.
But as I (Chris Lowe) will show you today, this isn’t a time to panic-sell. It’s an opportunity to buy the world’s most promising tech stocks at steep discounts.
You won’t read about it in the mainstream. But our tech expert Jeff Brown says tech stocks are headed for all-time highs this year.
The Daily Cut is the daily e-letter we created for all paid-up Legacy Research readers.
It’s the publisher behind Teeka Tiwari, Jeff Brown, Dave Forest, Jason Bodner, and Nomi Prins.
My mission as editor is to make sure you never miss one of their big ideas about how to really move the needle on your wealth.
I’m also on hand to help you through times like these when volatility is spiking and fear is stalking markets.
And as I hammered home last week, you won’t make transformative wealth as an investor if you get shaken out of your positions every time Mr. Market throws a tantrum.
So if you’re feeling stressed about your portfolio, take a deep breath. This is not another 2008. It’s not another dot-com crash, either.
It’s run-of-the-mill volatility from fears of Fed rate hikes.
When the Fed raises rates, it makes borrowed money more expensive.
This curbs the amount of funding available for companies that want to grow their business.
It also squeezes the profit margins of companies that take on debt, because it drives up borrowing costs.
Rate hikes also increase the interest you can earn on relatively safe bonds and cash.
This makes the profits on offer in riskier stocks less attractive on a relative basis. People think, “Why take the risk in stocks when I can simply pick up interest income on my bonds and the savings in the banks?”
And as investors try to reprice stocks to account for these changes, share prices tend to bounce around more dramatically than usual.
When you look back over the history of the Nasdaq, you’ll see pullbacks like this are normal.
The index launched in 1971.
Since then, it’s gone through 25 pullbacks between 10% and 20%. That’s about once every two years.
And the Nasdaq has also gone through 12 pullbacks between 20% and 30%. Or once every four years.
But over that time, the Nasdaq is up 13,595%.
That’s enough to turn every $1,000 into $136,950. But only if you’d stuck it out during all the pullbacks.
And don’t forget something very important…
The Fed’s key lending rate is at 0.25% right now.
The only thing that’s happened so far is that it says it intends to raise rates.
And Fed boss Jay Powell has done a 180-degree turn on rates before.
He took over as Fed chairman in February 2018. And he came into the job promising to raise rates.
At first, he made good on his word. He raised rates four times that year (red circles on the chart below).
Then the bottom fell out of the stock market toward the end of the year. And he had a sudden change of heart…
The following year, he cut rates three times (green circles on the chart).
As regular readers know, he’s a former Silicon Valley insider and our tech investing expert here at Legacy.
In March 2020, when the stock market was plunging due to the coronavirus pandemic, he urged his readers to resist the urge to panic-sell out of their positions.
That was sage advice. Since then, the Nasdaq is up 92%… even after the recent correction.
And Jeff’s urging calm again. As he wrote over at our daily tech investing e-letter, The Bleeding Edge…
There’s a chance the market could pull back a little more leading into the Fed’s rate-setting meeting in March. But I expect we’ll see stocks hit all-time highs before the year is out.
With the recent pullback, the market has already priced in several aggressive interest rate hikes this year. But I don’t think the Fed will go through with it. It’s only testing the waters with these statements.
And there’s a reason for that: the midterm elections in November. Jeff again…
I don’t think the Fed will aggressively raise interest rates heading into the midterms. That would cause the stock market to pullback back even more, which would be bad for incumbents seeking re-election.
That will lead to a lot of pressure on the Fed not to raise rates aggressively this year. And I expect the Fed to start walking back its threats as a result.
I predict the Fed will raise rates only one or two times this year. And it will likely be only by a quarter of a percentage point each time. After that, the Fed will stay put through the midterm elections. And the market will respond very positively.
We can expect volatility over the coming months. But I don’t expect a major market crash this year…
That’s why Jeff’s message to his subscribers is the same as it was during the pandemic-induced crash that sent the Nasdaq tumbling as much as 30%.
Volatility is a feature, not a bug, of the stock market. The way to achieve life-changing gains is to weather the storms when they arrive… and keep a firm eye on the horizon.
If you’re interested in picking up some tech bargains, check out colleague Jason Bodner’s recommendation in Saturday’s edition of The Bleeding Edge.
It’s an opportunity to buy some of the world’s most bleeding-edge tech stocks at a 50% discount.
Regards,
Chris Lowe
February 7, 2022