Fed swaps now fully price in 150 basis points of hikes over the next two meetings after awful inflation numbers came in showing inflation heading in the wrong direction.
The 9.1% inflation print was an acceleration of the 8.6% which was what we got last time.
I don’t want to beat a dead horse, but inflation accelerating and beating the expectations of 8.8%, is paramount to the trajectory of tech shares.
The awful number also underscores the magnitude of policy mistakes that the U.S. Fed Central Bank has overseen.
This is the only thing that matters because macro liquidity drives the trajectory of equities in the short term.
These clowns aren’t serious about tackling inflation, as I said a few times already and this proves it!
Itty bitty rate rises won’t stamp out 9.1% inflation and in fact, encourages it.
The Fed would need to raise the Fed Funds rate by 7.35% to 9.1% immediately from the current 1.75% for the real inflation rate to be non-inflationary.
According to the official Fed website, the Fed targets 2% inflation because they call this level “healthy.”
By their own measure, to achieve this 2% inflation, they would still need to raise rates by 5.35% immediately, but they absolutely won’t because Powell simply has no interest in doing his job, period.
These core expenses skyrocketing is why I keep and kept mentioning that Americans have less money to splurge on tech gadgets and software and again, this inflation report validates my thesis.
Think about pitiful tech stocks that didn’t work in bull markets like ride chauffeurs Lyft (LYFT) and Uber (UBER), I fully expect these companies to perform terribly over the next 6 months amid a rising rate backdrop.
Not only are they growth tech, but their business is directly tied to energy prices.
They are the poster boys for the pain tech companies will feel from hyperinflation.
The outlook is quite poor for technology in the short term, and we are still waiting to form a bottom. It will come back but we need a capitulation.
The accelerated rate of inflation means that we push back the big recovery in tech stocks.
Ecommerce stocks will suffer like Amazon (AMZN), Shopify (SHOP), and MercadoLibre (MELI) because of the decline in discretional spending for the consumer.
Digital ad giants like Google (GOOGL), Snap (SNAP), Meta (META), and Twitter (TWTR) will need to reckon with smaller ad budgets from 3rd party ad purchasers as companies cut back on marketing spend.
Don’t need to increase marketing spend when people have no money to spend on products.
Travel tech stocks like Expedia (EXPE) and Tripadvisor (TRIP) can expect summer to mark peak travel as Americans get more concerned about food and oil budgets after the summer of travel revenge from the arbitrary lockdowns.
It also means there will be a meaningful next leg down for tech stocks as many CFOs are now furiously crunching the new revenue and margin downgrades to reflect this heightened risk.
The new re-rating isn’t reflected yet in tech shares.
It’s already been a few months on the trot where many analysts say this is the top, they have been inaccurate every time.
Even if it is the top, inflation will stay higher for longer and stagflation is the consensus for 2023.
The clowns at the Fed not doing their job means that economic cycles will be shorter and a great deal more volatile because the smoothing effect of moderated inflation is now stripped out of calculations. This effectively means a contracted boom-bust trajectory for tech stocks which is unequivocally what we are seeing in market behavior.
