The "hawkish" Fed has pushed U.S. investors to accelerate their escape from tech stocks, can they still buy at a low price this time?

When predicting the trend of US stocks in 2022, many analysts have expected that us stock cycle stocks will outperform growth stocks in 2022, while technology stocks will be under pressure. Just a few days into 2022, this trend has already emerged. Investors have sold tech stocks and switched to banking, industrial and energy stocks.

Analysts generally expect that in the context of the Fed's tightening of monetary policy, technology stocks are bound to come out of the roller coaster this year. But some analysts believe that the traditional strategy of buying tech stocks on dips after each big fall is still working.

The plate rotation has begun

As of the overnight close, Goldman's index, which tracks technology stock returns, has fallen about 6 percent this year, trailing the benchmark S&P 500's 1.38 percent drop.

Many technology stocks fell by double digits. So far this year, the shares of e-commerce groups Etsy and Farfetch have both fallen by more than 10%; the shares of Snowflake, a software maker that Warren Buffett is optimistic about, have fallen by 12.36%; and the stock prices of Moderna, a well-performing drugmaker last year, and Quest Diagnostics, a new crown virus detection processor, have also fallen by 15.26% and 9.07% respectively so far in 2022.

In contrast, stocks of automakers such as Ford and General Motors, as well as bank stocks such as Bank of America and Citibank, are favored by investors. By the close overnight, the KBW Bank index had risen nearly 4.95 percent this year, after rising 7 percent at one point near an all-time high. Travel and leisure sector stocks, which have been hardest hit by the COVID-19 pandemic, are also rising, with shares of American Airlines, United Airlines and cruise operator Carnival all recording gains. Stock indexes of companies closely linked to the reopening of the U.S. economy tracked by Goldman Sachs — including shopping mall operator Simon, hotel group Marriott International and aircraft maker Boeing — rose nearly 5 percent ahead of the overnight late-session decline.

Hani Redha, a portfolio manager at PineBridge Investments, said the sharp sector rotation was partly due to the fact that investors expected the Omilon strain to be less damaging to the world's large economies than previous viruses.

The sell-off in the $22 trillion U.S. Treasury market, a pillar of the global financial system, has also exacerbated this sector rotation. As Treasury yields climbed earlier this year, stocks at many of the more expensive but not yet profitable tech companies declined in appeal to investors, including many of those that had recently gone public.

"Spec tech is taking a hit." Redha said the valuations of these companies tend to depend on potential future earnings and are therefore more sensitive to rising interest rates.

David Lebovitz, a strategist at JPMorgan Asset Management, also said that the sharp rise in bond yields in recent days has made growth and technology stocks "unstable."

"We're not going after 'ambitious' companies, we're going to choose companies that can really generate revenue." LeBovitz said.

The Fed has exacerbated volatility in tech stocks

Given the volatility of U.S. stocks at the beginning of the year, many market participants have said that they are preparing for a bumpy first quarter. Many analysts are more frank that the Fed is the variable they are most concerned about.

"Let's face it, there is still a lot of uncertainty in the US stock market." Kristina Hooper, chief global market strategist at Invesco, said, "In particular, the Fed's monetary normalization will lead to higher volatility." ”

Daniel Ives, an analyst at Wedbush, and his team also predicted in their January 5 research report that the technology sector will usher in a roller coaster trend in 2022. The report pointed out that in 2022, the background of the Fed's tightening of monetary policy, inflation concerns, chip shortages and concerns about the Olmikron strain will make the technology sector more unstable, and the mood of technology investors will become more and more tense.

This is not false. At 3 a.m. Beijing time on Thursday, the Federal Reserve released the minutes of the December FOMC meeting, in addition to the market has been expected to accelerate tape (reduce the scale of bond purchases), earlier than expected interest rate hikes and other content, the minutes show that the members also discussed the reduction of the balance sheet.

As soon as the minutes came out, all the U.S. stock indexes fell sharply, the NASDAQ index plunged more than 3%, and the Invesco QQQ Trust Series 1 (NASDAQ: QQQ), which tracks the performance of the NASDAQ 100 index, also closed down 3.07%. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed down 1.92 percent and the SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA) closed down 1.03 percent, reflecting expectations of tighter monetary policy at the Federal Reserve. Tech stocks are weaker than the rest of the market.

Can I still buy tech stocks at a low price?

After a few trading days this year, the market is most concerned about whether the strategy of buying technology stocks at a low price still works this time.

The Ives team said that we think the stocks of the long-term winners in the technology sector and the companies that will drive the Fourth Industrial Revolution are currently oversold, and their valuations are very convincing given the huge growth prospects of these companies in the next 12 to 18 months.

"After tech investors have had a brutal start to the year, last December's FOMC minutes were the last straw that broke the camel's back. But we want to warn investors that now is not the time to concede defeat in a tech bull cycle. "For decades, we have been focusing on technology stocks. We also witnessed many tense moments, including the bursting of the tech bubble in 1999/2000 and the financial crisis of 2008/2009. But right now, with businesses and governments spending $1 trillion over the next decade to drive digital transformation in cloud transformation, cybersecurity, big data, and 5G, we expect growth prospects in the tech sector to be 2-3 times higher than normal. So while investors also need to worry about the Fed, the tech sector already at a 10-year peak, and some macro-level noise, the potential growth in the tech sector (which investors underestimate) is unmatched by any period we've been through in the last 21 years. ”

In the short term, the Ives team also pointed out that the strong earnings of technology companies this quarter and positive guidance for the whole year of 2022 can also soothe the nerves of investors. They therefore advise investors to take advantage of the recent sharp sell-off of technology stocks to buy on dips and selectively hold "technology winners" in the next 12 to 18 months.

The Ives team also gave a list of what they considered "winners." Among the big tech stocks, the team is bullish on Apple and Microsoft, and Avis recently reiterated that in a bull market, Apple's stock price can rise to $225; in the field of cybersecurity, they are optimistic about Zscaler, Palo Alto Networks, Tenable, CyberArk; in the field of big data, they are optimistic about Wejo; in the field of metaversics, they are optimistic about Matterport; in addition, they also give a technology stock that is opposed to the earthquake under this year's turbulent trend. Pega, Progress, Checkpoint, Consensus, NICE Systems, and Ziff Davis.

Previously, Goldman Sachs also gave its own list of bargain-buying technology stocks. Goldman Sachs is bullish on companies such as Snowflake, Marvell and Weave Communications.