The Fed will likely maintain higher rates until unemployment rises, further adding pressure to tech shares in the coming six months. This does nothing to dissuade us from a bullish view of key tech developments for the longer term.

None of the 72 economists who participated in the Bloomberg consensus poll won the $2 billion Powerball lottery this week and none had forecast headline inflation to be just 0.4% month over month. With bearish sentiment at highs, this better-than-expected news caused a highly correlated move higher for all risk assets.

We acknowledge that valuations reflect new, higher capital costs and more conservative growth estimates, but immediate increases in profits and dividends are unlikely. After this 3Q reporting season, it is clear that tech won’t be spared from this particular downturn.

We now see tech valuations that are much closer to longer-run averages. While we expect interest rates to fall later in 2023, a challenging earnings backdrop is likely to initially offset some modest re-rating toward higher PE tech multiples in 2023.

We continue to prefer quality names with less economic sensitivity, which in practice means a bias toward profitable tech over unprofitable moonshots.

Despite a challenging year and an uncertain outlook into 2023, we still believe many technology firms will be leaders in the digital revolution of the next decade. Indeed, these technologies are becoming ever more deeply embedded in how we live and work.

In the years ahead, we expect intensifying innovation driven by well-funded research and development. And we believe that businesses will either have to embrace new technologies and processes or face extinction. We therefore would view any further volatility in tech shares over the coming year as an opportunity to build positions for the long run.