The carnage in Tech land from November 2021 has been intense. Many tier two and tier three tech stocks such as ROKU, Block (Square), and DocuSign are down between 30%-60%. Several five-star rated growth mutual funds are down over 15% year to date. The main cause of this correction is the uncertainty regarding how many times the Federal Reserve will raise interest rates this year and into 2023.
Based upon previous rate hiking cycles, this will cause the growth of the economy to slow down. The stock market is always looking ahead and has already started to discount slower economic growth in the months ahead. A lingering concern is what happens if the FED goes too far, meaning they raise interest rates too much. As we have experienced in the past, when this happens the economy falls into a recession. We do not think a recession is likely however you can never rule out the FED overshooting. Since 1913, the FED has a history of being wrong at pivotal points and causing more damage.
We believe investors that have a holding period greater than two years will benefit from buying high-quality companies at these discounted prices. The forward growth rate for many of these tech companies is well above average and as they compound over time will only add to their attractiveness today.
Matt Lawson
Managing Partner, LWWM
The views expressed are not necessarily the opinion of Cadaret Grant, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
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