Data &
Technology
Research
Reports
Report Solutions
Reports Library
Actionable
Strategies
Free
Resources
Simple Backtest Calculator
Simple Seasonality Calculator
The Kelly Criterion Calculator
Sentiment Geo Map
Public Research Reports
Free Webinar
Pricing
Company
About
Meet Our Team
In the News
Testimonials
Client Success Stories
Contact
Log inLoginSign up
< BACK TO ALL REPORTS

Technology and Inflation DO NOT Mix

Jay Kaeppel
2021-05-19
Technology is King, and the performance of technology stocks has been nothing short of remarkable. But few investors seem aware - nor seem to much care - about the troubled relationship between technology stocks and high inflation.

To say that technology has taken the world by storm in the past 25 years would be an understatement - just how it has taken the investment world by storm. To gain an appreciation of exactly how much the impact of technology has accelerated in recent decades, consider the two charts below.

The first chart displays the growth of $1 invested in the S&P 500 Technology Sector from 1926 through 1994.

The next chart extends the chart above into May of 2021. 

The above sort of speaks for itself. Starting in 1995, the tech sector:

  • Exploded higher by over 900% in just over 5 years
  • Then lost over -82% in about two and a half years
  • Then proceeded to rally over 1,700% in the years since

At this point, it is essentially a given in most people's minds that "Technology is King." And within the realm of investing, a lot of people have come to accept that high valuations for top technology companies are not only "just the way it is" but that these valuations are "justified." 

I mean, "what could slow technology stocks down," one might ask.

Well, inflation, for one thing. 

WHEN TECHNOLOGY MEETS INFLATION 

No one knows for sure what the future holds. However, history has shown that when inflation reaches a certain level, technology stocks have not performed well. Let's take a closer look.

For our warning sign of high inflationary pressure, we will evaluate the latest Producer Price Index reading at the end of each month. The chart below displays the 12-month change for the PPI since 1926, with the +10% line marked in [COLOR]. 

For testing purposes:

  • If the 12-month change in the PPI reaches or exceeds +10%, we will consider this "bearish" for technology stocks
  • If the 12-month change in the PPI is less than +10% we will consider this "bullish" for technology stocks

The chart below displays the cumulative % +/- for the same technology sector shown in the charts above ONLY during those months when the previous month ended with the 12-month change in the Producer Price Index at +10% or higher.  In all, the S&P 500 Technology sector has lost over 44% while the PPI was over +10%.

The table below displays the technology sector's performance ONLY during those months when the previous month ended with the 12-month change in the Producer Price Index at +10% or higher.

WHERE WE ARE NOW

As we saw in the chart of the 12-month change in the PPI above, our simple indicator is now flashing "bearish" for technology stocks. At the end of April 2021, the PPI 12-month change stood at +12.0%, and at the end of May, it will stand at +17.2% (based on the latest PPI reading). 

Does this mean that tech stocks are "doomed" to fall? Not at all. There are obviously many other factors in play that can and will affect the fortunate of the technology sector as a whole. Still, the results above suggest investors pay close attention to their technology stock holdings if the recent uptick in inflation persists.

Sorry, you don't have access to this report

Upgrade your subscription plan to get access
Go to Dasboard
DATA &
TECHnologies
IndicatorEdge
‍
BackTestEdge
‍
Other Tools
‍
DataEdge API
RESEARCH
reports
Research Solution
‍
Reports Library
‍
actionable
Strategies
Trading Strategies
‍
Smart Stock Scanner
‍
FREE
RESOUrCES
Simple Backtest
Calculator
Simple Seasonality
Calculator
The Kelly Criterion
Calculator
Sentiment Geo Map
‍
Public Research Reports
‍
Free Webinar
COMPANY
‍
About
‍
Meet our Team
‍
In the News
‍
Testimonials
‍
Client Success Stories
Pricing
Bundle pricing
‍
Announcements
‍
FAQ
© 2024 Sundial Capital Research Inc. All rights reserved.
Setsail Marketing
TermsPrivacyAffiliate Program
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.