Technology, healthcare and China took a pause last week, why that's a good thing. Banks, Oil do well
Happy Friday everyone, I hope you all are looking forward to a relaxing weekend! I wanted to address the crazy market last week, which we haven't seen since last October. For those of us who looked at our investment accounts last week, it surely was hard to stomach seeing the values decline.
Why did the market freak out, specially technology and the Nasdaq? In a nutshell, high quality government bond interest rates went up very quickly, so we saw an adjustment in what large investors wanted to own for the short term. This rate is also called the "risk free rate." Portfolio managers focus on rates in a big way because it helps them determine company values, and whether they are worth the same value as the last 6 months. We have not had interest rates on 10 year government bonds at 1.5% in a long time, they had been kept close to zero for about year due to covid, and at times almost negative. When big investors see that they can now park money safely at 1.5%, they're going to do it, and sometimes they are required to do it. When I say "big investors" and required to do it I mean pension funds, endowments, and balanced mutual funds that contain bonds. They were all selling their Teslas, Apples, Microsofts and other high growth areas.
Pauses in high growth sectors are normal, and healthy because it means that the "froth" or "bubbly" areas of the market are brought back to normal. As Cathie Wood said today, CIO of ARK Investments- "the bull market is broadening out." She also said in the video, the markets are reacting similarly to how they did after when Trump got elected. Boring areas of the market did well, also known as value stocks. For the rest of the term, technology and healthcare led the way.
What about China and Emerging Markets? China and emerging markets tend to act a little bit more dramatically to interest rates in the United States since they buy a lot of our bonds. So their big money movers were also taking profits from high growth areas in anticipation of increasing rates. Here's a great article about China. Their economy is doing extremely well, same with India.
Side note: The two best performing areas right now are Bank stocks are (up 11%), and Energy stocks are (up 28%). Some boomers are surely happy with that, they love their dividend stocks- which are great when you are IN retirement and need income. We're not there yet!
If anyone has any questions, or concerns please let me know, I am available M-F for you. As always, it's important to not invest with emotion. Have a great weekend!
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