The dramatic correction in the technology sector appears to be at an inflection point. After peaking in mid-Feb., buying momentum lifted the NASDAQ earlier this month.
Traders should watch the bounce from an upward trend line and a return back to the 50-day moving average. Working against the expensive sector is the 10-year Treasury bond yield (IEF). Inflation is almost a certainty. Just look at oil prices gaining strength.
Higher prices for goods will force the Fed to rethink its low-interest-rate policy. The bank will want to get ahead of inflation by moderating its purchase of bonds. The higher rates will hurt technology stocks.
A continued correction is healthy. The market is still pricing stocks as if the growth will continue at the same pace. Teledoc Health (NYSE:TDOC) and Roku (NASDAQ:ROKU) are off their highs but are still trading at a premium. Countries started loosening the lockdown, especially in the U.S. Movie theatres are reopening around the country. As more people go out, demand for streaming, online shopping, and other online activities will weaken.
The world is nowhere near resolving the current pandemic. Still, the vaccine’s efficacy – those offered by Moderna (NASDAQ:MRNA) and BioNTech (NASDAQ:BNTX) – will save lives. The mass vaccination will eventually lead to a return to normalcy, at the expense of tech stocks.
