Are We Watching The End Of The COVID-Tech Era And Back To Value?

The current mood on Wall Street is pretty gloomy with everyone from Facebook’s Mark Zuckerberg to Netflix’s Reed Hastings ruing the end of their fairy-tale growth period which started ever since the pandemic first hit us. What did happen that caused the US Stock Exchange to go into a stealth bear mode and reduced the confidence of the investors?

First things first, let us begin with the headline news- the S&P 500 counted January 2022 as the worst period/ To give you an idea, the last time the markets took such a windfall was way back in 2016.  What happened? The NASDAQ Index fell by more than 10 Percentage Points in January 2022. 

This has led commentators and financial analysts to believe that this is in many ways some form of a market correction that is being engineered by the Federal Reserve. With the COVID-19 government support ending as we enter the endemic stage, the Fed is all set to increase interest rates. This is what is creating the loss of investor confidence in the markets. 

In this article, we are going to look at how the hike in interest rates is going to affect the stock market. Additionally, we are going to explore what are some favorable options for investors that are looking to move away from tech stocks. We end with discussing dividend stocks and why seasoned pros are recommending the same to investors in 2022 and beyond. 

Understanding the Fall of Tech Stocks in January 2022

The COVID-19 Pandemic saw tech companies cashing in on their most favorable growth periods ever. Everyone from Facebook to Apple, Netflix, and Amazon saw people turn to online sites and digital platforms for every aspect of their life. 

With the Fed helping the markets with low-interest rates, consumer spending was encouraged. Let us break it down for you in the simplest words. When borrowing rates were reduced, people were encouraged to buy more and spend on technologies, gadgets, and software. 

This made these companies hot properties in the stock market. the Remote Work and WFH models boosted tech use and attracted investors who came on board to buy stocks in the droves. With the pandemic entering the endemic stage, the Fed is trying to claw back normalcy.

This meant two major things- 

  1. Firstly, high-interest rates are going to discourage consumer borrowings from banks and financial institutions. This is going to fuel high inflation rates in the market. 
  2. Secondly, with people venturing out more and getting back to their pre-pandemic lives, the dependence on tech, gadgets, and online platforms is going to go down. 

The Federal Reserve and Interest Rate Hikes in 2022: What should you expect?

FIVE!

That is the number of hikes that are expected by the Federal Reserve in 2022 alone. Why is this significant? For the simple reason that the Fed is trying to remove the protection that it extended to a weak US economy and investors struggling from the pandemic. 

While the market correction is a good thing, what is worrisome is the steep inflation rate which is climbing. If some reports are to be believed, the US economy is going to witness its worst inflation in 40 years. Inflation is expected to drive prices of goods and devalue the dollar. 

The overall expectation is that stocks are going to get hit further. With consumer spending dropping even further, companies will be battling with rising input costs, while not being able to hike prices because of stiff competition and keeping their users with them. 

Businesses that are going to benefit the most from this as shown in the S&P’s forecast of January 2022 are energy companies, financial institutions, and FMCG businesses. 

Are Dividend Stocks Viable Investments in this Financial Landscape?

If you are an investor who is reading this, you are surely worried about which stocks you should invest in. Fortunately, in the midst of all the drama and uncertainty, there are some stocks that appear to be as stable, if not stronger, in terms of their performance. 

Enter- Dividend Stocks!

There are some companies that are financially stable and have strong foundations. These companies regularly reward their investors with dividends on their stock. For example, if you own 100 stocks of a company that hands out dividends at $2 per stock, then every year, you will be getting $200 from the company as winnings or rewards. 

A major reason why investors seek out companies that pay out dividends is because of the fact that they are less risky. The simple thing to understand is that if a company is giving out dividends, it is in a secure place financially. This is what makes dividend stocks such an attractive area of investment for investors looking at long-term security. 

Now the question that you might be thinking about is this- where and how can I invest in dividend stocks? In the following section, we have covered some of the highest yield dividends stocks in TSX

The Best Dividend Stocks in the Stock Markets of US and Canada

Canadian Markets- 

  1. Fortis INC
  2. Enbridge
  3. Canadian Railway Co
  4. Telus Corp
  5. Emera
  6. National Bank
  7. Alimentation Couche-Tard
  8. Algonquin Power
  9. Royal Bank
  10. Intertape Polymer

US Markets- 

  1. Lowe’s
  2. Walgreens Boots Alliance
  3. Johnson and Johnson
  4. Target
  5. Brookfield Infrastructure Group
  6. Microsoft
  7. American Express
  8. Clearway Energy
  9. American Electric Power Co
  10. Principal Financial Group

The Bottom Line

There is no denying the fact that the markets are in the midst of their biggest overhaul ever. It is also true that the growth of tech stocks was in part engineered by the actions of the Fed when the pandemic started. This is a course correction that will play out in 2022. The only worrying thing is how the Fed is going to balance the inflation worries that are going to hit the markets. 

Investors that rode the growth and are now looking for favorable areas of opportunity are confident in riding a more stable wave with dividend stocks. With 2022 being all about market volatility, having something that is stable and with solid foundations can be a great way to protect your investments. 

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