Is Tech a Bubble in Search of a Pin?

Okay, listen up, class. Who said the following:

“The three- to five-year earnings projections of more than a thousand analysts, though exhibiting some signs of flattening in recent months, have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth.”

Were those optimistic words uttered by a celebrity CEO? Or one of the talking heads on CNBC?

Nope. It was Alan Greenspan, testifying to Congress in December 2000, when he was Federal Reserve chair. Three months later, in March 2000, the bubble burst in spectacular fashion. Whoops.

As pricey technology stocks start to wobble at the start of 2022, it’s prudent to rotate away from the momentum high-fliers and toward value.

Stocks closed mostly lower Monday, in choppy trading. These three main U.S. indices declined as follows: The Dow Jones Industrial Average -162.79 (-0.45%); the S&P 500 -6.74 (-0.14%); and the small-cap Russell 2000 -8.66 (-0.40%). However, the tech-heavy NASDAQ erased earlier big losses to actually close in the green, after roller-coaster action: +6.93 (+0.05%).

In pre-market futures contracts Tuesday, all four U.S. indices were trading higher, as investors bought on the dips. But it’s clear that as the new year gets underway, stocks have lost momentum. The main culprit: rising interest rates.

The benchmark 10-year Treasury yield currently hovers at 1.78%, from 1.51% at the end of 2021. Analysts now expect the Federal Reserve to hike interest rates as many as four times in 2022, as the U.S. central bank gets more aggressive in fighting inflation.

Change of market leadership…

In the stock market, today’s laggards can be tomorrow’s winners. We’re currently in the midst of a market rotation, whereby value stocks are outpacing growth stocks. As Wall Street anticipates higher interest rates, tech shares have been getting pummeled.

Watch This Video: The Great Stock Rotation Gets Underway

Should you dump stocks altogether? Certainly not, but you need to re-calibrate your allocations. Brace yourself for continued volatility and increase your exposure to value-oriented plays. As tech has plunged in recent days, energy, financials, and industrials have been performing relatively well.

Rising yields do pose a threat to momentum stocks as investors fret about the erosion of long-term cash flows for these companies. Higher rates mean future profits are worth less today. But rising rates lift other sectors.

Banks and insurance companies benefit because higher rates expand their profit margins. And because rising rates point to a strengthening economy, cyclical sectors such as consumer goods and industrials also benefit.

By investing in value stocks, investors essentially buy a built-in gain and/or a safety net. The smallest bit of good news can propel their stock up to a fair price. Even significant bad news doesn’t necessarily bring the price down. In many cases, the stock is undervalued because such bad news was already anticipated.

Overvalued stocks, or even some fairly valued stocks, on the other hand, are highly susceptible to bad news and don’t always respond as expected to good news. Surely, you’ve held a stock that released quarterly earnings that “met expectations” and proceeded to get hammered.

To gauge where the markets are heading and to adjust your portfolio accordingly, you need to put aside wishful thinking (as well as the preconceived agendas of the chattering class) and dispassionately focus on the empirical data.

Key reports are scheduled for release this week, with all eyes on the consumer price index (Wednesday) and the producer price index (Thursday). The following table shows the highlights:

JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC) are scheduled to release quarterly earnings Friday. These Big Banks are economic bellwethers. The combination of new inflation data and bank operating results will determine the stock market’s next leg, up or down.

Overall, strong corporate earnings should keep the rally alive, regardless of temporary selloffs. For Q4 2021, the estimated earnings growth rate for the S&P 500 is 21.7%.

Tech stocks are poised for a prosperous future in the post-COVID world. Not all tech stocks will get clobbered in the rising interest rate environment. But careful stock selection is the answer, which is where the experts at Investing Daily can help. There’s still plenty of money to be made in both the growth and value segments, despite current risks, but you must pick your spots.

How can you protect your portfolio under these uncertain conditions? Our investment team has devised a trading methodology that provides big gains but also mitigates current risks. Click here for details.

John Persinos is the editorial director of Investing Daily. Send your letters to: To subscribe to John’s video channel, follow this link.