Inflation is running hot and rate hikes are looming — brace for a tech pullback
The May inflation report comes out Wednesday and is expected to show prices rising at a 4.2% annual rate. At the same time, bond traders are betting heavily that the Federal Reserve will respond by raising interest rates sooner rather than later.
Idea
Higher inflation is currently the market's biggest fear because it forces the Federal Reserve to raise interest rates, which makes borrowing more expensive for everyone and tends to slow down the economy. With expectations set at 4.2% and major banks like BNP Paribas predicting multiple rate hikes, any confirmation of these numbers in Wednesday's report will likely trigger a swift market sell-off. Tech stocks and growth companies are hit the hardest in these scenarios because their future profits look less appealing when interest rates go up. Positioning against the broader market leading into this news is a smart way to protect capital and potentially profit from the dip.