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24 Feb 2021
3 min read

Tech Stocks Lifted After Fed Chair Powell Eases Rate Fears

Tech Stocks Lifted After Fed Chair Powell Eases Rate Fears

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Key Takeaways

  • Investors turn back to more cyclical stocks
  • Jack Dorsey’s Square announces a new bitcoin purchase

Federal Reserve Chairman Jerome Powell indicated that the central bank will stick with its ultra-loose monetary policy to support the pandemic-stricken US economy. As a result, investors rotated back to tech stocks as they rebounded from their early-morning lows. Fed Chairman Powell spoke to members of the US Senate Banking Committee yesterday where he stated that there was “hope for return to more normal conditions” given the ongoing vaccination program and the daily dropping of Covid-19 cases as well as a decline in hospitalizations.

In the market, growing fears were prevalent due to quick inflation that could hurt stock valuations. Investors looked to the Chairman’s speech for reassurance that rising prices were under control. During his appearance before the Senate Banking Committee, Mr. Powell managed to minimize the concerns for a sharp and unhealthy spike in inflation this year. Returning confidence pulled the Nasdaq Цomposite from its early swoon to a close of -0.50%. Chairman Powell vowed to keep his monetary policy and asset purchases going for the foreseeable future. The Nasdaq Composite fell as much as 3.9% in early trading on Tuesday pushed by inflation fears. Tech stocks rebounded swiftly after the speech of the Federal Reserve Chairman but remained under pressure.

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved”, the Chairman said. “While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year,” he added.

Investors Eye Tech Shares

Tuesday’s market gyrations highlight a shift in investors’ appetite from sectors like tech and clean-energy to cyclical picks as the economy is improving and expectations are set for a pick up in Covid-19 vaccinations that will accelerate the economic recovery. Real-economy sectors such as banks and the hospitality industry have been recently witnessing an increased inflow of cash.

The Nasdaq Composite index led the bounceback from the March 2020 lows when the wheels fell off the market. Investors then rushed to buy shares in technology, biotechnology, and related firms that promised faster growth in comparison to the economy. Since Feb 12, the tech-heavy index has fallen 4.5%.

Two of the most wanted assets for investors were tech-related, namely, Tesla and Bitcoin which dropped on Tuesday. In the first minutes of the opening session in the US, Tesla shares plunged as much as 10% but investors gradually erased most of the losses and the stock closed lower by 2.19%. Bitcoin dropped by 16% on Tuesday and reached a low of $44,800. The crypto asset is trading 14% higher from its low point, currently at the $50,000 mark. Bitcoin received a slight boost yesterday when Square, a payment company led by Jack Dorsey, announced the purchase of an additional $170mn in bitcoin. According to the latest reports, a growing number of users come to Square’s Cash App to buy and sell bitcoin. As a way to meet the demand, the company doubled down on the token with its newest purchase.

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