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Invesco’s Arnab Das explains why US tech stocks are losing steam

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Invesco’s Arnab Das explains why US tech stocks are losing steam 2

We are going to have a market where there is going to be a lot of dispersion across sectors and countries and some of those things that are changing will benefit some companies but not others or countries, says Arnab Das, Head of EM Macro, Invesco.

There was nothing really in the FOMC meet that we had not heard before. Why are we seeing such heavy declines especially in the US tech stocks?
The main information was pre-figured before the September FOMC. At the Jackson Hole meeting in August, the Fed surprised the markets on the dovish side by laying up this average inflation targeting framework on general parameters but not the specific ones. So I suppose that left the market hoping for more dovishness and maybe there is a little bit of disappointment that despite this average inflation targeting, despite the fiscal push, despite the monetary push, it looks like there is not that much uplift to inflation over the period of projections. Even though the Fed is going to try, it is not going to get much above the inflation target plus there is a little bit of concern that we are not actually going to be generating the kind of inflation that people were hoping for. That probably helps to account for some of the pressure on stocks including tech stocks and a more upward pressure on bond prices.

Are some of the concerns regarding high valuations, the froth in the technology shares behind us or do you believe investors are still worried about that?
The concern is certainly there. We have had a very strong run up in stock indices and valuations in some sectors particularly technology and a few others and in some country indexes particularly the US. The concern is valid and warranted but one needs to step back from particularities of this tech sector or particularities of any given day when the market is trying to digest what the Fed may have meant or said or may not have meant or said.

The question really here is whether monetary and financial conditions and fiscal conditions are going to remain very loose in order to support the recovery that is already suffering from some headwinds from the virus and may be from changes in behaviour as well as regional lockdowns both in the US and other countries.

We have had a reopening rebound and now growth is levelling off a bit. The implication is the policy will have to remain very loose. There are going to be some structural changes. Stay at home stocks may gain at the expense of some older economy stocks in some areas like airframes and air travel. These are going to be challenged for longer than we might have thought.

Of course, all these things might still turn around in time if there is an early vaccine that is widely available but even then the balance sheet issues are going to remain, labour market issues are going to remain and the prospect of continued structural changes in the economy is going to remain. I would say we are going to have a market where there is going to be a lot of dispersion across sectors and across countries because different things are going on different places and some of those things that are changing will benefit some companies but not others or countries.

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