A significant disconnect in the USA technology sector is on top of mind for investors in the year 2022, as per David Kostin who is a Goldman Sachs’ chief USA equity strategist.
USA tech sold off sharply at the starting week of this year taking the Nasdaq 100 Market Index almost into correction territory on Monday before four-day losing streak.
Investor anxiety is driven by higher interest rate prospects as the central bank is striking a more hawkish voice since December. Markets are getting ready for rate hikes and tightening of the federal reserve’s balance sheet.
Due to this, analysts broadly anticipate 2022 to be a challenging year for high-growth technology companies that have derived benefits from earlier ultra-easy monetary policy.
Kostin said, “The single greatest mispricing in the U.S. equity market is between companies that have high expected revenue growth but low or negative margins, and on the other hand high growth companies with positive or very significantly positive margins. That gap has adjusted dramatically in the last year.”
Kostin believes that tech companies that had high sales but generate little profit are sold by investors after a time of being hugely sought after.
Kostin said, “Much of that took place in the last month or so, and largely that’s because as rates increase, the valuation, or the value of that future cash flows, are worth somewhat less in a higher rate environment.”
