Finance

Tech Giants Seen as Inflation Hedge in the Latest MLIV Pulse Survey

(Bloomberg) -- In an intriguing turn of financial trends, major US technology companies are not merely symbols of cutting-edge progress but are increasingly viewed as shields against the biting effects of inflation. This revelation came from the most recent Bloomberg Markets Live Pulse survey, which also indicated that gold has maintained its longstanding status as the primary defensive asset in times of monetary erosion.

A significant proportion, accounting for nearly half of the survey participants, still believes that gold reigns supreme in safeguarding purchasing power with 46% backing it as the premier choice. Nevertheless, the tech behemoths have caught the eye of investors seeking protection from inflation, with 31% of those surveyed favoring these corporations for this purpose.

US Financial Dominance through Big Tech

The emergence of companies like Nvidia Corp., Amazon.com Inc., and Meta Platforms Inc. in commanding positions within US financial markets underscores their contribution to the country's economic breadth. Their business tentacles spread through vast facets of the marketplace, cementing their ability to accrue consistent profits. It’s these profits that power investor rallies, amplifying confidence in the companies’ future performance and their capacity to deliver robust returns in the long term.

Inflation and the Economic Outlook

US inflation has retreated substantially from the scalding highs of 2022, yet the figures from the first quarter have surpassed analysts' forecasts and persistently tower over the Federal Reserve’s comfortable 2% threshold. As a result, sustained price increases loom as the principal obstacle worrying investors. A clear majority — 59% of the 393 polled — pinpointed returning inflation as the paramount tail risk shadowing financial markets for the remainder of the year. Without a definitive downturn in the inflation rate, which is projected around 3.4%, investors remain cautious.

Tech Stocks against Price Increases

The impact of inflation on tech giants can be seen in the performance of companies like Nvidia. Nvidia’s skyrocketing ascension, over sixfold since March 2021 when inflation exceeded the 2% mark, exemplifies the zeal of the tech sector. Similarly, Apple Inc., notwithstanding its cyclic highs and lows, has gracefully outmatched the broader market during the same period, posting over a 50% gain in contrast to the S&P 500’s rate of approximately 30%. However, it's vital to comprehend that growth stocks, particularly in the tech sphere, react sensitively to the inflationary environment and fluctuations in interest rates due to their valuations largely depending on anticipated future earnings.

Recession Concerns and the Value of Treasuries

As the landscape of economic risks unfurls, about one-fourth of surveyed participants have started looking towards 2024 with a recession looming as their primary concern. In such an environment, US Treasuries may take precedence over stocks as the preferred defensive investment, illuminating the shifting investor sentiment towards a more conservative approach to asset allocation amidst uncertainty.

For more insight, you can read "We Need to Talk About Recession Risk Again: MacroScope."

US Economy Resilience and Investment Inflow

Despite the Federal Reserve's tightening monetary grip, the US economy's unexpected robustness continues to captivate cash inflows to American shores. This amphitheater of investment, charmed by high bond yields and an uptick in corporate earnings, fuels a rejuvenation of the US dollar's dominance. As per the survey’s findings, an overwhelming 74% see the dollar as the quintessential haven currency throughout market turbulence. This sentiment resonates stronger amongst respondents from the US and Canada who give the dollar an 86% nod, while in Europe, favoritism for the Swiss franc is more pronounced, attracting 43% of the vote.

The Decline of the Yen’s Safe-Haven Status

The Japanese yen has watched its status dwindle as a safe-haven currency, attributed to its depreciating value against the dollar and Japan's enduring dovish monetary policy. This diminishing appeal is starkly evident in the fact that earlier this year, the yen plunged to levels unseen since 1990. The contrast in interest rates between Japan and the US has exacerbated the yen's plight, casting a shadow over its historical position as a reliable asset during times of instability.

For an expanded perspective, consider reading "Gold Rally Makes It Look More Like Hedge Than Haven: Macro View."

The Ascendancy of Gold and the Dynamics of Geopolitical Diversification

This year has observed a nearly 15% upswing in the value of gold, driven in part by substantial buying from the People’s Bank of China. Amidst the seizing of Russia's dollar-denominated assets following the onset of conflict in Ukraine, nations are increasingly seeking to decouple from dollar dependency. There is a budding inclination toward diversifying into assets that are geopolitically neutral, with gold receiving considerable attention in this shift. However, this diversification trend has not significantly buoyed Bitcoin, as evidenced by only 13% of the respondents acknowledging that the cryptocurrency has profited from the appetite for geopolitically unconfined assets.

MLIV Pulse Survey Methodology and Participation

The MLIV Pulse survey offers a vital snapshot of market sentiment and is administered to a targeted audience consisting of Bloomberg terminal readers, alongside additional respondents sourced from an online participant base. The survey operations are managed by the adept Bloomberg Markets Live team. For those wishing to engage and contribute to future surveys, there are opportunities to sign up and become part of the evaluating voice in these influential market assessments.

For further information and to register for future surveys, sign up here.

--With assistance from Simon White.

©2024 Bloomberg L.P.

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