The NASDAQ-100 Index (NASDAQ: NDX) and ASX tech shares had a really good performance in January 2023, after what was a really difficult 2022.
Over the last month, the NASDAQ-100 went up by 10.6%.
In January 2023, we saw the Xero Limited (ASX: XRO) share price climb by more than 9%.
The REA Group Limited (ASX: REA) share price went up by over 13%.
The Seek Ltd (ASX: SEK) share price rose by more than 15%.
The Carsales.com Ltd (ASX: CAR) share price climbed over 9%.
The WiseTech Global Ltd (ASX: WTC) share price rose 19%.
The Altium Limited (ASX: ALU) share price went up 10%.
Looking at the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC), an exchange-traded fund (ETF) that's invested in 46 ASX tech shares, saw a rise of over 9% in the month.
Why are ASX tech shares doing so well?
Technology businesses were one of the hardest hit in 2022 as interest rates zoomed higher.
But, there are signs that inflation may have peaked and could now be reducing.
For example, in the US in the three months to December 2021, the Employment Cost Index rose by 15%, which was less than the 1.1% expected number and a slowdown from the 1.2% in the prior three months, according to reporting by the Australian Financial Review.
The AFR quoted National Australia Bank Ltd (ASX: NAB) head of fixed income research, Skye Masters, who said:
The clear point from this data is it's showing that wages growth in the US is easing.
So, it does alleviate that concern that some Fed members might have had that maybe we're entering into a wage price spiral, so it's supportive of the view that the Fed can dial back its pace of tightening and possibly pause.
The AFR also reported on comments from Matt Wacher, chief investment officer at Morningstar for the Asia Pacific, who said that while the Reserve Bank of Australia (RBA) could increase the cash rate one or two more times, there could then be a cut later this year. Wacher commented:
I am sure the RBA would like to keep rates higher for longer, but this can put significant pressure on the economy here, more so than other regions given personal debt levels.
On the ASX tech share space, he said that the shares are "not cheap, even though they had fallen sharply, and are priced to perfection", according to the newspaper.
My take
I don't think the US Federal Reserve is going to make things easy for the share market.
Jerome Powell has promised to fight inflation "until the job is done". I think that means that interest rates are going to stay high for longer than some investors are expecting. This is what he said a few months ago:
But, with many valuations still a long way below their 2021 levels, I think a number of ASX tech shares, like Xero, seem very promising for the long term even if they have risen a bit higher than a month ago.
Keep this in mind: it may not really matter what happens in February 2023 if the investment horizon is five years or more ahead with an ASX (tech) share.
