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Market Update                                                                                                                    May 2023

Technology as a sector, has been leading the market this year.  Over the last decade this sector has done very well, typically leading bull markets.  Last year, it was the worst performing sector.

So, what is the difference between this year and last?

Well, as interest rates started to rise, technology (growth stocks) started to fall in value.  Growth stocks as a whole are long-term assets and their value is based on anticipation of future growth.  When interest rates rise that growth is effectively discounted and valuations drop.  Technology companies also tend to need constant capital infusions that get more expensive as interest rates rise.

Recently, we experienced the quickest rise in interest rates in history by central banks in order to fend off inflation.  However,  the market seems to be anticipating stabilization in interest rates and eventual retraction and as a result, we are seeing technology shares starting to rise.

Since 1987, growth stocks have tended to trade inversely to interest rates. 

I think there are two forces at work in the market right now.  One is anticipation of stabilization and eventual reduction in interest rates and the other is recession as the economy gets squeezed by those higher interest rates.  Hmmmm.

I think Artificial Intelligence and Cyber Security have significant potential in the technology space.

An easy way to participate is to own the backbones like Alphabet, Microsoft, Nvidia, Advanced Micro.  The same can be said in cyber security space where leadership is among four or five names.

What about a recession?   Well, given the balance sheets of many technology companies and an economy that still has full employment, I suspect any recession will be of the light in nature.  I am more interested in what these types of companies will be worth in a few years, particularly given the pullback in their shares last year.

Sure, there are some adjustments.  For instance, semi-conductor demand for vehicles will likely fade a bit from major shortages last year if car sales weaken with rising interest rates.  Otherwise, stay the course owning technology as one of several diversified sectors within your portfolio.

*I and/or my family own shares in the companies mentioned in this letter. 

I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial. 


Best regards,

National Bank Financial


Rob Hunter

Senior Wealth Advisor


Sources: NBF, Stockcharts.com, Fidelity, Reuters

National Bank Financial is an indirect wholly owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). 

This information was prepared by Rob Hunter, an Investment Advisor with National Bank Financial. The particulars contained herein were obtained from sources that we believe reliable but are not guaranteed by us and may be incomplete. 

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