Tech stocks have a strong track record of outperforming during periods of “non-recessionary rate cuts.” Historically, the tech-focused ETF XLK has gained over 25% one year after each of the last six rate-cut cycles—except during the 2001 internet bubble and the 2008 subprime crisis.
Source: Refinitiv
At the 2024 Communication and Technology Conference, Goldman Sachs Managing Director Kash Rangan highlighted three key factors currently driving big tech stocks:
1. Interest Rates
2. The Upcoming U.S. Presidential Election
3. Generative AI
Low Interest Rates Fuel AI Advancement in Tech Companies
Big tech firms are heavily investing in artificial intelligence, requiring substantial capital expenditures. Unlike smaller growth companies, these giants have ample cash reserves to fund projects without relying on external financing. However, they still choose to issue debt because, with their high credit ratings, they can borrow at lower interest rates after rate cuts. This strategy optimizes their debt-to-equity ratios and enhances overall company value.
The U.S. Presidential Election’s Crucial Role in Fiscal Policy
Fiscal policy significantly influences industry trends, and uncertainty peaks during election years. The outcome of the presidential election will shape future fiscal policies, affecting market dynamics. Until specific policies are announced, markets may remain cautious—even if the Federal Reserve starts easing monetary policy.
Why the “TANMAMG” Portfolio Consistently Outperforms the Market
The “Magnificent Seven” tech giants form an equally weighted investment portfolio known as “TANMAMG,”rebalanced quarterly. Backtesting since 2015 shows this portfolio has dramatically outperformed the S&P 500, achieving a total return of 2009.65% compared to the SPY’s return of 221.99%—a substantial performance gap.
How to Invest in Tech Stocks
While big tech stocks have strong long-term prospects, some investors worry that current prices are too high, indicating potential short-term volatility. To navigate this, consider a systematic investment approach by regularly investing in individual stocks or index ETFs like QQQ and XLK. This strategy helps smooth out price fluctuations and reduces the impact of emotional decision-making.
Tiger Trade make it easy to get started. With as little as $1, you can begin investing in these stocks and ETFs. You can also set up automatic investment plans starting from $2, scheduling purchases daily, weekly, bi-weekly, or monthly. To set up a plan:
1. Search for a stock or ETF on Tiger Trade.
2. Click on “Auto-Invest” at the bottom of the page.
3. Set your investment plan according to your preferences.
Ultimately, as big tech companies harness AI to redefine the future of humanity, they will profit from these innovations—an outcome that will inevitably be reflected in their stock prices.
$Invesco QQQ(QQQ)$ $Technology Select Sector SPDR Fund(XLK)$ $NASDAQ(.IXIC)$ $ProShares UltraPro Short QQQ(SQQQ)$
Disclaimer
Not financial advice. Investment involves risk. The price of investment instruments can and do fluctuate, and any individual instrument may experience upward or downward movements, and under certain circumstances may even become valueless. Past performance is not a guarantee of future results.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
Comments