Mon. Jan 17th, 2022

Updating: Technology stocks have given up all gains since this post went up, with both the Nasdaq and the basket of software stocks trailing in the red. From a slightly later perspective, concerns about near-full employment and the resulting rising interest rates seem to have won the battle over market sentiment.

The relationship between economic news and the value of technology stocks has been a fun puzzle in recent months.

For example, you might think that strong jobs reports would lead to general economic optimism and thus upward moves for technology stocks. And you would also expect that bad economic data would lead to general economic pessimism, and thus a downward movement for technology stocks. You know, because technology is a big part of today’s economy.

Hey, no. Well, partly yes, but also no.

Heading into today’s jobs report, the markets were haunted. Namely, the US Federal Reserve, which will begin tightening monetary policy this year, perhaps by ending its bond-buying program, lowering its balance sheet and raising interest rates. The upshot of the Fed’s tightening is that bonds and other lower-risk assets are becoming more attractive. At the same time, rising interest rates are expected to make expensive technology stocks less attractive given the risk-adjusted performance evolution.

Given those dynamics, you would expect that a strong jobs report today would mean technology stocks would fall, and a missed jobs report would mean technology stocks would rise. That almost happened. Missed today’s December jobs data (199,000 net new jobs reported, about half expectations) and technology stocks initial out of stock. But as markets opened up, they rose higher, with the Nasdaq rising 0.34% – while the Dow Jones Industrial Average fell a fraction – and software stocks soaring about 0.8%.

Why the decline and then bounce in the value of tech stocks?

there is make sure that we have effectively achieved full employment. Which could mean that the low number of jobs in December was not entirely caused by a lack of employer demand, but also partly by a lack of labor supply. (The fact that we remain in a global pandemic capitalizes on this dynamic, naturally

We are then in the strange situation where a bad jobs report could indicate that the economy is stronger (closer to full employment) than expected, meaning wages and prices will continue to rise, prompting the Fed to raise rates . Which, as noted above, would mean that higher risk assets would sell and less risky assets would become more attractive. And yet tech stocks are slightly higher, as it seems markets are deciding that the bad report will turn out positive for tech stocks, which have sold off sharply in recent weeks. Or that the mediocre jobs report will essentially be less incendiary than a strong jobs report.

So technology stocks are higher these days and everyone who works in the industry is getting a little wealth boost.

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