The stock market is rebounding Tuesday morning after shares of tech companies suffered last week. The minutes from the Federal Reserve’s December meeting spooked some investors into selling out of risky, long-growth positions like Tesla and Apple. Stakeholder uncertainty seems to have cooled off this week, with contracts on the Nasdaq posting a modest rally Monday afternoon.
Market experts believe last week’s sell-off was connected to fears that the Federal Reserve will hike interest rates as soon as March of this year. This fear poured cold water on investor sentiment going into the new year, turning markets pessimistic and crushing the Nasdaq last week. Market analysts argue that higher interest rates and rampant inflation will lead to a tight economy in 2022.
Some experts are reevaluating these beliefs going into the middle of January, though. “We’re seeing across the board a re-rating of what the Federal Reserve will do,” says Citi Private Bank chief investment strategist Steven Wieting.
“The likelihood is very clear that the Fed will succeed in sinking inflation,” Wieting continues. “That was going to happen one way or the other and we are just trying to gather how actively the Fed will be doing that.”
How Much Control Does the Fed Have?
Amateur investors might not appreciate how much control the Fed has when it comes to the US economy. The Federal Reserve sets financial policy for all banking institutions in the US. As such, the central bank has immense power to affect the country’s economy. Its most direct lever for curtailing inflation is changing interest rates, which can soak up excess liquid capital.
The Fed also has tremendous cash reserves that it can use to buy treasury bonds and inject large volumes of money into the economy. With these two levers, the Federal Reserve exerts substantial control over the American market. The question has never been “can the Fed get inflation under control?” but instead “how quickly will the Fed employ its ability to curtail inflation?”
But analysts can’t come to a consensus on that second question. Some believe that the central bank will only hike rates four times this year, while others expect more increases before 2023. Experts agree that the Fed’s decision will be contentious in either case. JPMorgan Chief Executive Officer Jamie Dimon compares the Fed’s task to threading a needle.
“I’d personally be surprised if it’s just four increases,” Dimon tells reporters. “Four increases of 25 basis points is a very, very little amount, and very easy for the economy to absorb.” The JP Morgan CEO confesses that he worries inflation might be worse than the Fed realizes and could require more drastic policy changes.
Tech Stocks Recover
Analysts have softened their view on growth stocks this week, as evidenced by Nasdaq’s encouraging rebound Monday afternoon. Tesla, Apple, and Microsoft spiked in pre-market trading Tuesday, reversing a negative trend from the past week.
“Over the medium to long term, we still like tech stocks as inflation is probably peaking, earnings will remain strong and yields should remain somewhat contained,” says Flowbank SA chief investment officer Esty Dwek.
Last week, Apple became the first US company to crest a $3 trillion market cap. Shares of the tech giant are trading above $170 Tuesday morning, still down from its recent high of $180 on January 3. Shares of electric automaker Tesla, meanwhile, are surging back near the stock’s all-time high. The company’s shares are trading at $1,070 Tuesday, representing a nearly 1 percent rally on the day.
Tesla’s stock price has jumped over ten percent in the past month. Investors are optimistic about the American manufacturer following its eye-opening fourth-quarter delivery totals. Tesla is well-positioned to take advantage of the growing future demand for electric vehicles.
Bitcoin Back Over $40,000
The Nasdaq’s sell-off last week brushed against crypto, too. Digital currencies like Bitcoin, Ether, and Solana cratered in the past week after the Fed published its December meeting minutes. Many crypto stakeholders sold out of short positions on digital currencies to avoid devaluation ahead of interest rate hikes.
Bitcoin surged back above $40,000 today after briefly dipping to $39,916 on Monday afternoon. The digital token was trading just below $42,000 Tuesday morning. Investors are still reeling after the digital coin fell from its lofty heights just under $70,000 per token in November. Bitcoin has retreated 40% from that all-time high.
There’s still big money in crypto, though. At least, there is if you own an exchange company that trades in digital currency. According to a report from Bloomberg, Binance CEO Changpeng Zhao is worth $96 billion, rivaling Facebook CEO Mark Zuckerberg.
That’s not counting Zhao’s crypto holdings, which can oscillate wildly in value daily. Finance experts expect the ranks of the world’s wealthiest people to fill up with crypto CEOs in the coming years. Unless the crypto bubble pops this year, that is.