The downside move in tech stocks is a healthy pullback, since many tech stocks have become overstretched. When stocks rise too much and too fast, a pullback almost always ensues.
The tech pullback suggests that investors are coming to the realization that earnings expectations for tech stocks are high, creating a more difficult bar to clear when earnings season re-starts in July, and we would characterize this pullback as a recalibration of expectations.
We would much rather be buying tech stocks on days when they are down, and the pullback can present an opportunity for investors who do not have adequate exposure to this space, which is still fundamentally strong.
If the tech selloff continues, this may pause the pipeline of IPOs that are on the horizon, which could very well extend the duration of the bull market, since a parade of IPOs is typically a sign of late cycle activity.
Thursday’s PCE is set to take on greater importance for markets, especially since Federal Reserve Chair Warsh was emphatic in last week’s meeting about the central bank’s desire to achieve price stability, and this PCE reading could affect the market’s rate hike expectations.
