Inflation Fears Fuel Rotation Out of Growth Stocks05/11/2021

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Stocks opened lower again today after selling off Monday. The S&P 500 kicked off the week with a 1.04% decline with the three worst performing sectors (Technology, Consumer Discretionary and Communication Services) each falling by more than 1.9% yesterday. Optimism and economic metrics are improving, but risks are also starting to mount. The tech-heavy Nasdaq Composite has underperformed the S&P 500 nine out of the last 10 trading days as of yesterday’s close.

Investors increasingly fear inflation and its impact to both stocks and bonds. Bond investors are demanding higher yields to compensate them for inflation’s effect on purchasing power. This impacts stocks, because higher borrowing costs from rising yields make corporate debt more expensive. Stock valuations, which are currently at levels not seen since the dot-com bubble, also must be adjusted for the rising costs and this is especially bad for technology companies.

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Commentaries are published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.

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