The tech-heavy Nasdaq 100 is now down more than 6.0% for the year on rising inflation, but Allianz’ Mohamed El-Erian still has a reason that makes buying the dip in technology a smart move.
Tech has pricing power
In times of inflation, El-Erian noted, investors should turn to stocks with pricing power, which include many of the tech names. This morning on CNBC’s “Squawk Box”, the economist said:
Buy the dip conditioning is still there, but the more the liquidity regime changes, the more it’ll be under pressure. So, I like companies with pricing power. Tech comes in that category. They have pricing power; they’re not affected by inflation on the cost side as much as others.
His outlook is similar to MAI Capital Management’s Chris Grisanti, who said earlier this month that the underperformance in Amazon and Roku make up for a great opportunity to buy the stocks at a significant discount.
Quantitative tightening remains a risk
El-Erian agreed that quantitative tightening continues to be a risk for the economy but said a 10% to 20% downside in the U.S. stock market this year was unlikely. He added:
I don’t see up to 20% downside as a baseline. Is it a risk scenario? Sure. It could materialise if the U.S. Federal Reserve makes a policy mistake that leads to stagflation. That’s one scenario which could deliver such a decline in the market. It’s not a baseline, but a risk factor.
Inflation in the U.S. jumped to 7.0% in December – the hottest reading in almost four decades. Consequently, JPMorgan’s Jamie Dimon said last week that he’d be surprised if the central bank raised rates only four times in 2022.
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