Tech stocks will perform if Fed pauses on rate increases: Strategist - Yahoo Finance

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Tech stocks have rebounded in the first half of the year, with the S&P 500 technology ETF (XLK) up almost 150%, after the industry was slammed by rising interest rates in 2022. With the Federal Reserve's next policy announcement coming up in May, investors are looking for light at the end of the rate-hike tunnel. Kenny Polcari, Kace Capital Advisors Managing Partner, tells Yahoo Finance that a Fed pause could be a benefit for the tech industry.

Last week's weekly jobless claims bolstered bets that the Fed may pause its interest rate-hike cycle in an effort to tame inflation. "I think the cuts come in 2024, and then I would expect tech to continue to perform well," Polcari says.

If the Fed is forced into another position to raise rates due to rising inflation, Polcari says it would be bad for the industry. "Tech isn't going to like that, and investors are going to take money out [of tech]...and a bunch of areas of tech...will immediately come under pressure," he says.

Polcari spoke with Yahoo Finance's Brad Smith and Rachelle Akkuffo. Watch the entire interview here.

Key Video Moments

00:00:03: Tech bull run

00:00:25: Fed pause camp

00:00:40: Inflation & tech

Video Transcript

KENNY POLCARI: Well, tech is certainly leading that bull run right now, right? You can see the NASDAQ's up almost 16% on the idea that the Fed is going to pivot. Now, here's the next thing. You have to decide whether or not you think the Fed is really going to pivot. I don't, I'm not in that camp. I don't see how they can raise, raise, raise up until May, then pause for a month, and then start to cut. That makes zero sense to me.

And so therefore, I'm not betting on that. What I am betting on is the Fed is going to pause and then just hold rates where they are. If that's the case, then tech should do better. If we start to see the inflation data start to tick up again, forcing the Fed into another position to raise rates, tech is not going to like that and tech is going to-- investors are going to take money out of tech because they're going to run to take money out of the sector that has outperformed, clearly that's tech, and a bunch of areas in tech.

That will immediately come under pressure. But if the Fed pauses, which I think that's what they're going to do and hold rates steady, I think the cuts come in 2024. And then I would expect tech to continue to perform well.

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