Is a Recession Bullish For Tech Stocks? (EP.248)

Episode Summary

Executive Summary: The episode centers on a broad market selloff led by tech, rising recession odds, and the tension between inflation, falling real returns, and still-strong consumer/job data. The hosts also discuss surging commodity volatility, home-price inflation, private-market markdowns, leveraged ETFs, and crypto/NFT initiatives, while weaving in personal and cultural recommendations.

Main Topics: Tech-led market drawdown and recession fears (Priority: 5/5): The hosts frame the year’s poor market start as one of the worst on record, with tech and tech-adjacent sectors driving most of the pain. They debate whether a recession would deepen losses or eventually help growth stocks by cooling inflation and prompting rate cuts. Nasdaq wealth destruction and sector rotation (Priority: 5/5): They compare today’s tech drawdown to the dot-com era, arguing that far more wealth has been lost on a much smaller percentage decline because tech now dominates index weights and market capitalization. Energy is the only major winning sector. Inflation, rates, wages, and consumer resilience (Priority: 5/5): The discussion weighs soaring inflation, lower real wages, and rapidly rising short-term rates against a still-hot labor market, high household wealth, and strong spending/travel behavior that may delay a recession. Commodity and housing shortages (Priority: 4/5): Oil, gas, metals, agricultural commodities, and housing are described as supply-constrained markets with extreme volatility. The hosts suggest that price spikes are feeding through with lags and that housing is effectively acting like a commodity. Private markets, IPOs, and venture valuations (Priority: 4/5): They note a drought in IPO activity and widespread markdowns in recent tech/private companies, but also point out that private-market valuations can remain artificially elevated longer than public prices because of supply-demand dynamics. Leveraged ETFs and risk tolerance (Priority: 4/5): The episode revisits the dangers of leveraged products like TQQQ, emphasizing that even investors who believe they can tolerate volatility may not be prepared for repeated 50% drawdowns and path dependency. Charity NFT project and crypto infrastructure (Priority: 3/5): The hosts preview an NFT fundraising effort tied to the podcast, highlighting low gas fees on Polygon, charity proceeds, and new crypto infrastructure developments such as Stripe’s support for crypto businesses.

Key Arguments: The market is still in a tech-led correction rather than a broad bear market, because the weakest sectors are tech, communications, and consumer discretionary. A recession would likely be bearish in the short term but could be bullish for tech longer term if it lowers inflation and forces the Fed to cut rates. Today’s tech selloff is larger in economic significance than the dot-com bust because tech is much larger in index weights and corporate relevance now. Household wealth gains and a strong labor market may cushion inflation’s impact and delay a recession, even though real wages are falling. Commodity inflation is likely to persist with lags, especially in gasoline, food, and housing, due to supply bottlenecks and war-related disruptions. Private-market marks may lag reality, so some startups and their employees are already effectively experiencing much larger value declines than reported. Leveraged ETFs can be devastating in volatile, sideways, or grinding bear markets because losses compound and recovery requires disproportionately large gains.

Data Points: S&P 500 year-to-date performance: down 12% - Used as the backdrop for the market selloff discussion Nasdaq drawdown: down 20% - Described as a major tech correction with heavy wealth destruction Nasdaq wealth destroyed in the past year: $5 trillion - Compared with the dot-com era to show tech’s current size Nasdaq wealth destroyed from 2000–2002: $1.5 trillion - 80% decline during the dot-com bust S&P 500 average annual peak-to-trough decline: 14% - Used to contextualize normal market volatility Energy sector performance: up almost 40% - Only major sector with positive returns during the selloff Energy sector index weight: 4% - Explains why energy’s strength has limited impact on the overall market U.S. job openings: over 11 million - Supports the argument that labor conditions remain exceptionally tight Job openings pre-pandemic high: 7.5 million - Historical comparison for labor demand Quits in the U.S.: about 4.4 million - Used to show ongoing worker confidence and labor-market strength Household wealth increase in 2021: $5.3 trillion - Cited as a potential cushion against higher prices Record annual household wealth gain: $19 trillion - Referenced as a broader stock-and-housing wealth surge Gas price effect on households: about $1,000 per year per $1 increase - Illustrates the inflationary burden of higher fuel prices U.S. homes worth $1 million or more: 8% of all homes - Used to argue housing wealth may buffer consumer demand U.S. homes for sale: 456,000 - Record low inventory cited as support for housing inflation Median U.S. home sale price: $363,000 - Record high during the housing discussion High-school-dropout unemployment rate: under 4% - An example of unusually strong labor-market conditions Average hourly earnings vs inflation: declining for more than a year - Jason Furman point that real wages are being eroded Average annual inflation bet on Kalshi: 6.0% to 6.9% - Current leading range in the market’s inflation prediction market Two-year Treasury yield rise: 160 bps in six months - Largest increase relative to prior Fed hiking-cycle starts Leverage ETF TQQQ drawdown referenced: about 75% - Illustrates the pain of leveraged tech exposure during drawdowns Tech companies trading below last private round: one-third - Signals private-market markdowns in recent VC-backed names Retired workers returning to work: percentage chart referenced - Used to show labor-market re-entry and resilience; exact figure not stated Average U.S. home sale price rise: 33% - Attributed to falling inventory and housing demand U.S. IPO pricing vs offering price: 30% below offering on average - Indicates weak post-IPO performance over the past year Nickel price spike: roughly $20,000 to nearly $100,000 per metric ton - Used to highlight commodity-market stress and exchange intervention Oil pullback: down about 30% from highs - Cited as evidence of fast-moving commodity reversals Average U.S. households with $100k+ income: 40 million households - Suggested to be about one-third of households American households earning $100k+: 34% - Shown as a surprisingly large share of households U.S. adults without high school diploma unemployment: lowest in American history, under 4% - A labor-market anomaly used to underscore the unusual macro backdrop

Pivotal Quotes: "the fourth worst start to the year going back to 1928" — Michael Batnick / Ben Carlson: Describing the poor start for equities and what history suggests about the rest of the year "This is a tech sell-off more than anything." — Ben Carlson: Explaining that sector weakness is concentrated in technology and tech-adjacent holdings "The odds of a recession are way higher today, in my opinion." — Ben Carlson: Summing up the shift in macro outlook as inflation, rates, and slowing growth converged

Implications: Listeners should expect continued volatility, especially in tech and growth assets, while inflation and rate hikes pressure real purchasing power. Strong jobs and wealth effects may delay recession, but if one arrives, it could eventually reset valuations and create opportunities.