Stock Market Technology Sector Hit By Interest Rates
Following a Monday session with all three major indexes finishing positive, traders are watching weak signals in the stock market technology sector.
Rising interest rates are expected to continue triggering weakness in the stock market.
As the Federal Reserve (Fed) battles inflation with higher interest rates and without an established pattern of lower inflation readings, a sustained stock market rebound will be difficult.
Market technology sector, stocks hit by interest rates
Technology stocks over the last four weeks are down the most with little support ahead, according to Mary Ellen McGonagle, Senior Managing Director of Equities at Simpler Trading.
The technology sector is sitting at a 15% decline (before the uptick today) that is being led by semiconductor and software stocks which are down heavily, Mary Ellen pointed out. By comparison, the S&P 500 lost 8.6% over the previous four weeks.
“High growth technology stocks are the most negatively impacted in a rising interest rate environment,” Mary Ellen said. “Downgrades to the growth prospects among high profile semiconductor stocks such as NVIDIA (NVDA) and Micron (MU) are hurting these stocks, while poor earnings from Oracle (ORCL) and an overpriced acquisition from Adobe (ADBE) pushed software stocks lower.”
Not all areas of the high-tech sector are suffering, Mary Ellen said. Alternative energy equipment stocks were flat last week amid a mixed week for the group. Enphase (ENPH) was the top performing large cap name in this group with a 4% rally last week. Mary Ellen highlighted that the stock is in a bullish position to trade higher as it’s above each of its moving averages with positive momentum indicators.
Another positive stock was First Solar (FSLR) which was flat for the week after pulling back from a new high in price. On Friday the stock posted a bullish signal where the high and low for the day were above the prior day and it closed near its high.
“For now, select alternative energy stocks on our list remain in bullish positions and are poised for further upside,” Mary Ellen said.
Pessimism surrounds Fed rate hikes
The U.S. Consumer Price Index (CPI) inflation level of 8.3% last week sparked a wave of selling in stocks.
The news fell in line with pessimism surrounding the Fed rate hike campaign and its potential to cause a slowdown in the economy, according to Mary Ellen.
“Over the near-term, a rise in interest rates will continue to trigger weakness in the markets, particularly growth stocks,” Mary Ellen said. “Until we see an established pattern of lower inflation readings, a rebound in the markets will be difficult.
“The removal of the event that takes the markets into a bear market – in this case inflation – is the hallmark of a market bottom,” she said. “Other characteristics also need to be present such as high-quality stocks staging turnarounds and progressing toward base breakouts.”
The Wednesday Fed announcement finalizing the next rate hike will be very closely watched as will comments from Federal Open Market Committee (FOMC) Chairman Jerome Powell regarding expectations going forward.
“Using the widely-followed CME FedWatch Tool, the bond market now expects the Fed to stop rate hikes at around 4.5% with the last hike occurring in March 2023,” Mary Ellen said.
Traders are encouraged to stay alert to any shifts in stock market sentiment regarding the Fed interest rate announcement.