‘For The First Time In Years, Fear Overrode Greed In The Tech Space’: Fund Specialist On Market Volatility
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Recent activity in the markets reminded us that volatility can come quickly and its causes are unpredictable.
Two important things drove the markets sharply lower — a spike in interest rates and a story about Chinese espionage.
First, the rise in interest rates has been slow and steady all year. What caused an unforeseen spike during the week started with the announcement that Amazon would raise its minimum wage to $15 an hour.
The connection between Amazon employees and U.S. interest rates may not be visible initially, but what that announcement told the bond market is that 250,000 employees will have more money to spend, and that Amazon is an industry leader and its actions may be followed by other big employers.
More money in people’s pockets means more spending, which could lead to higher inflation
down the road, which could mean higher interest rates. This concern led bond traders to start selling. No one wants to hold bonds or paper that may lose value.
So the selling began. This culminated through the end of the week with continued positive economic news, including an unemployment rate now down to 3.7 percent. Historically, this has been the normal reaction of markets when rates increase.
Interest rate-sensitive investments have historically performed poorly during a rising rate environment. It’s the unexpected timing of Amazon’s announcement during a week of other announcements that led to an unexpected selloff in the bond market. However, this is good news in the long run.
Higher wages and moderate inflation are positive and healthy for an economy. It’s just that as the markets adjust to the “new normal” of rising rates, it can be a bumpy road. We view these factors as causing short-term volatility but no cause for alarm.
The second factor that affected the markets, Chinese espionage, was nearly impossible for those of us without a top-secret clearance to foresee.
Bloomberg published a report about a microchip implanted in computer hardware that went undetected for years. The chip is so small it can fit on the tip of a sharpened pencil, and was found in suppliers of Apple, Amazon, 30 other U.S. companies, the CIA, U.S. Department of Defense, and other U.S. government agencies.
This story sent the tech sector tumbling on Thursday and Friday due to fears that the trade war/tariff concerns between the U.S. and China may only escalate. The tech sector was specifically affected since this is now a national security issue and the potential disruption to supply chain, cost to manufacture products and intellectual property theft is unknown.
All these concerns combined, along with the fact that the technology sector has enjoyed huge gains over the past several years, caused investors to choose to take the safety of profits and sell long-held positions.
Fear and greed drive the markets as we know. This will mark the first time in years where fear overrode greed in the technology space.
It is impossible to predict what will happen in the near term. However, these two factors combined may cause continued volatility in the markets which we haven’t seen since early in 2018.
If you have exposure to the markets (even if in your company’s retirement plan), consider taking a look at your positions and making any necessary adjustments to your portfolio.
The information and opinions provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of SagePoint Financial and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing involves risks in regards to all of the investment products mentioned in this commentary, including the potential loss of principal. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.
Securities and advisory services offered through SagePoint Financial, Inc. Member FINRA/SIPC and a registered investment advisor.
Tunde Ogunlana, CFS, Family Wealth Advisor, 5310 NW 33rd Avenue, Suite 206, Fort Lauderdale, FL 33309