• Analysts consider tech rally to be fundamentally unfounded
• Strong Bitcoin is an indication of strong speculation on the market
• Investors don’t seem to want to see changed reality
The years of ultra loose monetary policy, with which the US Federal Reserve wanted to cushion the effects of the financial and later the Corona crisis, had made investors very willing to take risks during this time. Among other things, they rushed into shares of high-growth but loss-making technology companies. But with the turnaround in interest rates in 2022, such shares in particular came under pressure. Because, on the one hand, these growth companies are usually more heavily leveraged and now have to deal with rising borrowing costs, and on the other hand, the current discounted present value of the future cash inflows expected for them decreases with higher interest rates.
In the new year, however, the mood seems to have shifted back in favor of growth stocks. The NASDAQ has increased by 11.55 percent since the turn of the year (as of March 6, 2023), while the blue-chip index Dow has only risen by 0.89 percent.
Tech rally is pure speculation
However, analysts at Richard Bernstein Advisors do not believe this tech rally is sustainable: “Some have argued that the year-to-date rally in speculative assets signifies a fundamental shift from value to growth. However, this year’s rally makes us very doubtful,” quoted “MarketWatch” from a statement from the analysts.
Accordingly, Richard Bernstein Advisors does not see any fundamental, economic reason for an increased interest in growth stocks. Rather, the simultaneous rally in meme stocks, unprofitable companies and, above all, crypto assets is an indication that this is probably only a short-lived speculative market phase.
Bitcoin, the world’s most popular cyber currency, was able to shake off the negative factors from 2022, such as the insolvencies of FTX, Three Arrows Capital, Voyager Digital and Celsius Network, and has achieved an enormous price increase of 35.16 percent in the course of 2023 to date (as of March 6th). 2023). “Cryptocurrencies seem to be at the forefront of speculation. There is no fundamental basis for cryptocurrency performance,” the experts explain. And further: “Cryptocurrencies build solely on the assumption that other speculators will buy them at a higher price in the future”.
denial of reality
Furthermore, analysts at Richard Bernstein Advisors point out that the Fed has drained huge amounts of liquidity from the market. However, this flood of money was a major driver of the pandemic high-flyers. However, as investors revert to those earlier winners, it reflects investors’ tendency to “hang on to old leaders” in hopes that they will come back.
In reality, however, when a new bull market emerges, it will be led by other stocks that are better suited to the new environment. “The speculative rally so far this year appears to be a perfect example of investors refusing to embrace a changing economy,” the analysts said.
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