- Weaker economic data has investors betting that central banks will be constrained in their ability to tighten policy, seeing an 11th hour rally in rate-sensitive tech stocks.
- Investors may be better off taking some money off the table regularly as such sentiment-fueled relief rallies are unlikely to be durable.
The global financial markets saw some respite on Friday as it realizes its first weekly rally of the month. Worries about an impending recession are urging investors to reevaluate how belligerent central banks will be to quell soaring inflation.
Up-to-date economic data has proven to be insipid, seeing numerous traders curtailing their assumptions on how much the U.S. Federal Reserve will tighten its policies as economic growth slows.
Investors hope that lackluster economic data will rekindle animal spirits and that an economic slowdown could allay inflation as central banks will have lesser need to raise interest rates.
The benchmark S&P 500 chalked up a 6.4% gain last week while the tech-heavy Nasdaq Composite Index climbed 7.5%, its biggest weekly gain since March this year, with tech stocks being more sensitive to interest rates than other sectors.
Since tech companies tend to focus on growth instead of dividends, lower interest rates and a low-yield environment facilitate the risk-taking narrative, which favors tech stocks and other assets like cryptocurrencies.
Whether last week’s rally proves durable remains to be seen.
Markets continue to be whipsawed by conflicting economic data, central bank policy guidance and general uncertainty with respect to the global economic outlook.
