US Retail Investors Buying Tech Stocks Despite Inflation Concerns (Comprehensive)

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Despite inflation, individual investors in the United States are still holding growth and technology stocks. This challenges the traditional Wall Street belief that technology stocks tend to fall when signs of rising prices appear.

The Wall Street Journal (WSJ) reported on the 25th (local time) that "individual investors are flocking to growth stocks," citing AMD and Nvidia as representative examples.

According to Bandari Research, the top three stocks most purchased by individual investors in November were semiconductor companies AMD and Nvidia, along with Apple.

These growth stocks are usually popular in a low-interest-rate environment. Since there are few alternatives offering high returns, investors tend to flock to technology stocks with high future growth potential. This is why technology stocks surged sharply after the 'zero interest rate' era began following the COVID-19 pandemic in March last year.

However, with the U.S. Consumer Price Index (CPI) in October rising 6.2% compared to the same month last year?the largest increase in 30 years?interest rate hikes are expected to begin sooner than initially anticipated, possibly as early as next year.

As a result, there were forecasts that the rise of technology and growth stocks would slow down. When interest rates rise, it has the effect of discounting the future earnings of relatively overvalued technology companies. This is because borrowing costs increase for 'Big Tech' (large information technology companies) that have already made massive investments.

Nevertheless, individual investors still seem obsessed with growth stocks. In fact, over the past month, AMD and Nvidia surged more than 28% each, and Apple rose 8.1%. This is a larger increase compared to the 2.1% rise in the U.S. benchmark index S&P 500 during the same period.

WSJ pointed out that some individual investors rely on a 'momentum investing' strategy, chasing stocks that are rising because they believe they will continue to go up.

There are forecasts that this technology stock rally will continue for the time being. According to a Bank of America survey conducted earlier this month, 61% of fund managers believe inflation is temporary. This means that as inflation is expected to eventually subside, investors have less reason to avoid technology stocks.

Viraj Patel, head of global macro strategy at Bandari Research, told WSJ, "The lesson we have learned over the past 12 to 18 months is that IPOs, fiscal stimulus, and other micro events have been bigger factors in individual investors' behavior than inflation."

This content was produced with the assistance of AI translation services.