Morning Market Brief: October 25, 2023

Making the case for tech stocks

In the latest edition of Advisor ToGo, CIBC Asset Management Portfolio Manager Robertson Velez makes the case for technology stocks. Large tech stocks were the darling of global stock markets coming out of the early stages of the pandemic. However, rising interest rates subdued expectations for the group. Velez argues that higher interest rates might not impact the business fundamentals of tech stocks.?

• Tech stocks might be a good investment, particularly for the long term. The rise in interest rates has led many to question the group’s valuations. Still, Velez says higher interest rates might not have a significant impact on the actual business operations of high-quality tech companies.
• The general sentiment has been that higher interest rates reduce the present value of cash flow, which has brought down the prices of tech stocks. However, Velez says the question should be the impact on the business. Higher interest rates will significantly impact companies with high debt levels or those that need to borrow money in response to unprofitable operations.
• However, high-quality tech companies have low debt levels, strong cash flow and grow revenues despite uncertain economic conditions, according to Velez. This has helped the group rise over 2023.
• Velez believes that while tech stocks do hold some risk, high-quality names should outperform the broader index over the long term. And if interest rates start declining, smaller tech names could get some tailwinds to outperform.

Heavyweight tech stocks have performed well in 2023 and could be strong drivers of growth in any portfolio over the long term despite some near-term uncertainty. Ignore the recent run-up in prices and the potentially negative impact from higher interest rates as these stocks could still provide value for your portfolio. For more, see the article and listen to the podcast: High-quality tech stocks remain resilient.

At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.