Nick Hyett, Equity Analyst at Hargreaves Lansdown comments on today’s market turbulence:
“A 2% fall in the UK stock market follows a 1% slide in the US last night – when it comes to stocks and shares, if the US sneezes the world catches a cold. But it should be no surprise that today’s inflation driven market sell-off started across the pond.
All things being equal higher inflation implies higher interest rates, and higher interest rates are particularly toxic for companies that promise little in the way of profits today, but rapid growth in the years to come. That’s a pretty accurate description of many tech stocks, and the US market is increasingly dominated by US tech names.
However, despite the market jitters investors shouldn’t be abandoning the tech sector just yet. This time last year the oil price had just plummeted into negative territory for the first time ever, and that alone means costs are going to be higher now than they were a year ago, in turn driving goods prices higher. A temporary boost in inflation was inevitable. What matters is whether inflationary pressure is sustained – there’s no convincing evidence that’s the case yet.”