While the 21st century may not have delivered flying cars or cloned dinosaurs as anticipated, technological advancements have made significant strides in recent decades, according to DataTrek Research.
The recent turbulence in the market can largely be attributed to the rapid increase in interest rates since 2022, after a prolonged period of historically low levels. Concerns have emerged among investors regarding the potential drag on stocks caused by elevated interest rates. However, Nicholas Colas, Co-Founder of DataTrek Research, advises investors to focus on factors beyond interest rates and Federal Reserve policy.
Colas argues that while tech stock valuations may fluctuate with interest rates, the true driving force behind long-term stock market returns is disruptive innovation. He emphasizes that innovative advancements are not influenced by the yield curve, particularly relevant as markets grapple with the challenges posed by higher rates in 2023.
The Nasdaq, known for its heavy representation of tech stocks, has experienced the greatest decline among the three major indexes in September. Colas, however, points out that the 1970s—a period characterized by higher rates and inflation—witnessed a golden age of technological progress. During that decade, the introduction of groundbreaking inventions such as the HP-35 calculator and the Apple II personal computer occurred, despite treasury yields at even higher levels than those seen today. Notably, during its launch in 1971 until the end of the decade, the Nasdaq not only increased nearly 50% but also outperformed the S&P 500.
Colas further asserts that when it comes to long-term market gains, the impact of 10-year Treasury yields pales in comparison to the influence of Moore’s Law. This law states that computing power per dollar doubles every few years, highlighting the exponential growth potential of technology over a decade.
In conclusion, while rising interest rates pose concerns for investors, the driving force behind long-term stock market returns remains disruptive innovation. Technological advancements continue to shape our world, regardless of fluctuations in interest rates.
The Rise of Big Tech: A Look into the Future
It’s no secret that the so-called “Magnificent Seven” big tech firms – Apple, Amazon.com, Google parent Alphabet, Facebook parent Meta Platforms, Microsoft, Nvidia, and Tesla – have experienced immense growth. The excitement surrounding the potential of artificial intelligence and machine learning to revolutionize various industries has captured the attention of investors.
When we consider how far we’ve come since the days of pocket calculators in the 1970s, it becomes clear that our current technology will soon seem quaint. Therefore, the concerns investors may have about recent stock market turbulence might also appear insignificant in the years to come.
According to Colas, a leading expert, while factors like interest rates and macro considerations are important, it is human innovation that ultimately drives long-term equity returns. Thankfully, entrepreneurs and technologists are not preoccupied with fluctuations in the bond market; instead, they focus on creating novel and disruptive businesses that will shape the future.
Furthermore, many analysts argue that Big Tech still has significant room to grow. Technical patterns, such as upward earnings revisions, suggest a bullish outlook for the industry. Solita Marcelli, the chief investment officer Americas at UBS Global Wealth Management, highlights the opportunities for investors to capitalize on technological disruption across industries. In particular, she emphasizes the significance of disruptors in the software, internet, and infrastructure sectors as artificial intelligence continues to expand its influence.
The transformational power of technology not only enriches our lives but also generates substantial stock market returns. It’s almost enough to make us forget about dreams of flying cars and resurrected dinosaurs. Almost.