Technology shares are experiencing a boom in recent weeks due to rising bond yields, regulatory worries, and investor anxiety.
Technology shares will regain their leadership on Wall Street over the next 18 months, after the storm passes.
Inflation in Treasury Bond Yields
For a period, the yields on U.S. Treasury bonds remained well below 1%. The Federal Reserve increased its accommodative policies to combat the pandemic recession, but that time was gone for most of 2020.
Investors were able to find higher returns from their investments elsewhere on Wall Street due to low bond yields. This led them, in turn, towards the tech sector. So, tech-heavy Nasdaq saw a big rally in shares of technology companies that helped it reach new heights.
However, as America’s economy started to recover from the 2021 pandemic, U.S. Treasury bonds yields began to rise, going from 0.7% in summer 2020 to 1.5% last week.
Investors were able to profit from technology sectors and seek higher returns in energy and other material industries due to rising bond yields. This led to a sell-off of tech shares as well as a rally in shares in the energy shares.
Good news: Treasury bond yields are now at 1.5%. This is because the Federal Reserve has indicated that it is ready to reduce monetary assistance through tapering.
Technology giants from China, the U.S., and Europe have always been on regulators’ radar.
China regulators pursue technology titans such as Alibaba. Alibaba It has weakened its position in the market (NYSE:). The authorities have also taken aim at American technology companies such as Qualcomm (NASDAQ:), and are imposing heavy penalties for market abuses.
European regulators are pursuing Google (NASDAQ:) in an effort to curb its global dominance. American regulators, however, have pursued Facebook, Google and Amazon (NASDAQ/NASDAQ:) to reduce their market share.
Good news is that regulators are limited in their ability to accomplish their goals. To protect their markets against competition, technology giants have created strong barriers to entry.
Microsoft (NASDAQ 🙂 is one example. U.S. regulators used tens to millions of taxpayer dollars in early 2000 to restrict the company’s power, but it was not enough.
Technology giants were not affected by geopolitical events for many years. Instead, investors focused on central bank policies to make easy money around the world.
However, technology is catching up to geopolitical developments, such as the intensified trade tensions between China and the U.S. in recent weeks. The tensions between China & Taiwan are threatening to further disrupt semiconductor supply chains.
This is the good news: these geopolitical developments aren’t recent and often fade with time.
The perfect storm which swept through the high sector over the past weeks will likely pass.
Disclosure: Panos Mourdoukoutas held shares in Microsoft and Qualcomm as well as Google, Facebook, Google+, Facebook, Twitter, and Alibaba at the time of publication.
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