In case you haven’t noticed, tech stocks are soaring this year.
Thanks to euphoria surrounding artificial intelligence, the tech-heavy Nasdaq is set to rise more than 30% in the first half of 2023. That will mark one of its best first-half performances ever!
A lot of folks missed this rally. Several surveys suggest a ton of retail traders and even hedge fund managers were sitting on the sidelines while tech stocks soared over the past six months.
Those folks may be feeling like they missed out on the tech surge.
But they didn’t.
This party is just getting started.
Fed Pauses Lead Tech Stocks to Rally
The simple reality is that inflation is crashing right now, which means the U.S. Federal Reserve should be done hiking interest rates. Whenever the Fed ends a rate-hiking campaign, tech stocks always soar. And they tend to soar for a very long time.
The latest inflation data hit the tape this morning, and it was super-soft. That’s why tech stocks are soaring today.
The personal consumption expenditures index (PCE) for May dropped to 3.8%, down 50 basis points from April’s reading. At that pace, PCE inflation will be back to “normal” pre-pandemic ranges by late summer.
Recall: This is the Fed’s preferred inflation measure. It will be back to normal in a month or two, and the Fed won’t meet again for another month.
In other words, by the time the central bank next meets, its preferred inflation measure may be back to normal levels.
Why hike again at that point?
Inflation Is Dead
The Fed is done with this rate-hiking cycle because it has completely won the fight against inflation. Any more rate hikes would just be overkill –and that’s a dangerous game when it comes to the U.S. economy and an increasingly fragile labor market.
That provides a very bullish read for stocks.
Did you know that every time the Fed has ended a rate-hiking campaign over the past 50 years, stocks rallied?
It’s true. And the rallies often weren’t small. See the chart below.
But here’s the really exciting part. After the Fed wraps up a rate-hiking campaign, tech stocks don’t just rally with the rest of the market – they tend to absolutely soar!
When the Fed paused its rate-hiking campaign in March 1980, the Nasdaq jumped 37% over the next year.
When it paused in August 1984, the Nasdaq popped 16% over the next year.
The Fed pause of February 1989 was followed by a ~20% rally in tech stocks over the following few months. The 1995 pause led to a 39% surge in tech stocks a year later. And the pauses in 2006 and 2018 led to ~20% and ~40% rallies in tech stocks over the following year, respectively.
Fed pauses systematically spark year-long tech stock rallies.
The Tailwinds Powering Tech Stocks Higher
But when a Fed pause meets a new technological paradigm shift, the rally in tech stocks tends to last much longer than a year.
Consider what happened in 1995.
At the time, the internet was emerging as a promising technological paradigm shift with the potential to radically improve the world’s productivity. Then, in February of that year, the Fed paused its rate-hiking campaign. The combination of a breakthrough emerging tech and the Fed pause led to a 40% surge in tech stocks over the next year.
But the party didn’t stop there. Tech stocks kept rocking and rolling throughout 1996, ‘97, ‘98, and ‘99, culminating in a ~450% rally over five years!
And today, we have the same exact setup with AI.
Artificial intelligence is emerging as a promising technological paradigm shift with the potential to radically improve the world’s productivity. The Fed has paused its rate-hiking campaign. And this combination should mark the start of a multi-year tech bull market surge.
Indeed, it looks like tech stocks are retracting their steps from the early days of the dot-com boom.
The evidence here is pretty clear.
Yes, tech stocks have been on fire. But this party is just getting started. Don’t miss out on the fun.
The Final Word
What better way to invest in the AI Revolution than by investing in the firm that started it all?
The whole AI buzz started in late 2022, when a startup by the name of OpenAI launched ChatGPT. Since then, the firm’s valuation has doubled, and it has scored huge partnerships with Intuit, Moody’s, and more.
Though because the company isn’t publicly traded, most retail investors missed out on OpenAI’s explosive rise over the past few months.
But I discovered a loophole that allows you to invest in OpenAI right now.
Like investing in Apple (AAPL) in the 1980s or Amazon (AMZN) in the 1990s, this is an opportunity you can’t afford to miss.
Learn all about that loophole.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.