After a formidable start to the year, the Nasdaq technology index soared sharply last month. On 12 February, the index stood at just over 14,095, while on Monday 8 March it was reduced to 12,609, down 10.5 per cent. The innovation fund ARKK was at most down 30 percent in a few weeks, heavily burdened by Tesla and Zoom, which also fell by 30 percent during the period.
Economists explain the decline in these shares with the increase in the ten-year interest rate, which traditionally leads to a sector rotation from growth to value shares. We saw the same trend for green growth stocks such as NEL, Aker Horizon, Kahoot! and Agilyx to name a few.
Over the past week, however, several of these stocks have recovered parts of the fall. Many believe this may be due to expectations of a somewhat later reopening than first assumed and still expansive fiscal and monetary policy from the authorities. Several also point out that the correction in the growth sector has led many to speculate that these shares are now cheap.
This week, President Joe Biden signed a $ 1.9 trillion crisis package to stimulate the economy. European Central Bank Governor Christine Lagarde decided (not unexpectedly) to keep the European key policy rate unchanged and stated that the central bank will increase the pace of the securities buying program to increase the willingness to invest in society and get the economy back on its feet.
Although expansive monetary policy in the short term increases the money supply and the desire to invest in society, investors should remember that this is a double-edged sword. Increased purchasing power also increases the demand for goods and services, which in turn can lead to increased inflation. Inflation risk, in turn, raises interest rate forecasts, which in turn can have a negative effect on the stock market, especially for growth stocks. One should therefore be very careful about the consumer price index (inflation) in the time to come.
Core inflation was 2.7 per cent in Norway in February, seven percentage points above Norges Bank’s inflation target. What Øystein Olsen thinks about it, we will hear on Thursday next week when Norges Bank makes its interest rate decision and releases its monetary policy report. No one expects the central bank to raise interest rates, but many are anxiously waiting for what the central bank governor will say about interest rate forecasts going forward. Nordea Markets expects in advance that Norges Bank will raise interest rates twice already this year, and a total of seven times by the end of 2023.
Next week, traders can also follow the latest inflation figures released for Sweden, France, Italy and the eurozone as a whole. On Tuesday, the latest figures for the ZEW index in Germany will also be released, which says something about the sentiment among professional investors and analysts in Germany.
If inflation is higher than expected, the recovery in growth stocks may be short-lived.
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