Yesterday, overnight Aussie time, the United States Federal Open Market Committee locked in investors' long-term relationship with TINA.
If you're not familiar with the acronym, it stands for 'there is no alternative'. Meaning with interest rates effectively zero, investors seeking returns have little choice but to invest in shares.
The Fed said it "expects to maintain an accommodative stance of monetary policy" until the US reaches established inflation levels of 2% and maximum employment. This likely means near zero rates until at least 2023. And where the Fed leads, most other major central banks across the world will follow.
The reaction in US markets was mixed, with the Dow Jones Industrial Average Index (DJX: .DJI) edging higher while the Nasdaq Composite (NASDAQ: .IXIC) lost 1.3%. But the mid and longer-term implications of years of record low rates and trillions of dollars more in quantitative easing (QE) from the US Fed and other central banks signal strong tailwinds for share prices.
But haven't share markets been selling off?
With that said, share markets never march higher in a straight line. After racing up at record paces since the mid-March troughs, US and Aussie markets have given back some of those share price gains in recent weeks as investors take the opportunity to pocket some profits.
That's seen the S&P 500 Index (SP: .INX) fall 5.5% from its 2 September all-time highs.
The S&P/ASX 200 Index (ASX: XJO), still nearly 18% below its own all-time highs set in February, is down more than 4.0% since 19 August.
Now it's certainly possible share prices could fall further from here in the short term. In fact, strategists at JPMorgan Chase & Co. point out that a pending US$200 billion (AU$270 billion) share sale by pension and sovereign wealth funds could drag shares lower.
However, as Bloomberg reports, JP Morgan's strategists remain optimistic, believing any short-term retracements present buying opportunities:
For the medium to long term, we still see plenty of upside given still low overall equity positioning. A retreat in equity and risk markets over the coming weeks would likely represent a buying opportunity.
Strategists at Goldman Sachs concur, forecasting that the recent pullback in share prices is near its end.
Goldman's strategists wrote (as quoted by Bloomberg):
Despite the sharp sell-off in the past week, we remain optimistic about the path of the U.S. equity market in coming months. Since the financial crisis, the typical S&P 500 pullback of 5% or more has lasted for 20 trading days and extended by 7% from peak to trough, matching the magnitude of the most recent pullback if not the speed.
But with technology shares having led the rally higher, and currently leading the markets lower, are the tech share price gains over?
The strong get stronger
If you've even glanced at the financial news in the past months, you'll know technology shares have been rocketing higher at a blistering pace. And that they've been giving some of those gains back in the past weeks.
The tech-heavy Nasdaq is down 8.3% since 2 September, more than twice as much as the Dow Jones. And the S&P/ASX All Technology Index (ASX: XTX) — which tracks 50 of Australia's leading and emerging technology companies — is down 8.4% since 25 August.
While no one likes to catch a falling knife, Hyperion Asset Management Chairman, Tim Samway, remains highly bullish on the big tech shares.
As the Australian Financial Review reports, Samway says record low interest rates have hidden the impact of slow global growth on many other businesses since the GFC. "You have 10 years post the GFC where average businesses have struggled. The bad news is there is no joy in sight for those businesses.'
However, Samway adds:
Modern information driven businesses not reliant on GDP growth are either expanding their addressable markets, taking market share or doing both. The strongest platforms with global scale win most customers and disrupt the old world regional competitors. The strong get stronger in an internet enabled globalised world.
One of the tech shares Samway is bullish on is Amazon.com, Inc. (NASDAQ: AMZN).
The Amazon share price is up 64% so far in 2020, but he believes it could far higher, pointing out the e-commerce in China accounts for more than twice the market share it does in the United States. "You can draw your own conclusion about how far Amazon's market share could rise from here. The number is substantial."
3 ASX shares to ride the technology wave
If you're looking for exposure to the biggest US technology shares, the Betashares Nasdaq 100 ETF (ASX: NDQ) holds the largest non-financial 100 companies listed on the Nasdaq. I won't run through its holdings, but the top 10 are all household names. The ETF is down 9% since 3 September. Year to date, the NDQ share price is up 20%.
Of course, there are some great tech shares trading on the ASX as well. One way to get exposure to some of Australia's largest and most innovative tech companies with a single investment is through the Betashares S&P/ASX Australian Technology ETF (ASX: ATEC).
ATEC only began trading on the ASX on 4 March and by 23 March, the share price was down 34%. Ouch!
But investors who held on were amply rewarded. The share price then leapt 109% to its record high on 25 August. Since 25 August, the ATEC share price is down 8%.
Finally, if you're looking to invest in a single share, and not a whole basket, there's online retail darling Kogan.com Ltd (ASX: KGN). The Kogan share price hit an all-time high on 18 August, up 208% in 2020. Since that high, the share price is down 10%.
But the Motley Fool's own Scott Phillips isn't dissuaded by these short-term pullbacks.
Scott first recommended Kogan in his investment advisory service, Share Advisor, on 28 September 2017. Members who followed Scott's advice and held onto their shares are currently sitting on gains of 434%.
And, in case you're wondering, Scott still has a buy recommendation on Kogan shares.
