US Tech Stocks Face Sideways Trade, High Rates Ahead

Russell Tensor, founder of Access Investments and parent to Trader ETFs, shared his views alongside Matt Markevich, head of product and capital markets at Trader ETFs.

Both experts provided their perspectives on the current global market landscape, highlighting key economic drivers and investment considerations for the upcoming quarter.

Massive investments in AI infrastructure have significantly boosted earnings for AI and AI-adjacent companies, serving as a primary catalyst for growth in the technology sector.

However, these gains are countered by mounting inflationary pressures, primarily driven by the ongoing conflict in Iran and subsequent increases in energy prices, creating a period of high volatility for investors.

The ongoing energy crisis, stemming from the conflict in Iran, is identified as the main driver of global inflationary pressures.

Russell Tensor indicated that, as long as the current geopolitical situation persists, the market should expect interest rates to remain 'higher for longer'.

With Democrats holding a 5 to 10% polling edge for at least one chamber of Congress, investors anticipate that a split government outcome will benefit the broader market, according to Russell Tensor.

Democrats currently hold a 5 to 10% polling edge, suggesting a divided government is probable, which is generally viewed as a positive development for the overall market.

Driven by early-year AI fever, technology stocks reached a valuation ceiling between late June and early July, and Matt Markevich anticipates the sector will face a choppy, sideways trading period.

The market is now expected to trade sideways with choppy performance, with October earnings reports likely dictating price action for the remainder of 2026, despite generally bullish expectations for company outlooks in 2027.

Russell Tensor pointed to massive AI infrastructure spending as the foundation for tech companies' current high market valuations.

This growth is a direct result of massive investments by large tech companies in AI and AI infrastructure, though macro-economic hiccups are causing temporary volatility for growth-priced equities.

Rising oil prices are pushing 10-year yields to 5% for the first time in two years, a shift that Matt Markevich identifies as the most critical macro focus for investors.

The rise in global interest rates is directly linked to higher oil prices, which continue to manifest in increased borrowing costs.

Investors must keep a keen eye on these levels as they directly influence market sentiment and valuation across various asset classes.

Beyond big tech, investors are increasingly focusing on AI sub-verticals such as photonics, power, connectivity, and materials, with smaller-cap stocks in these segments gaining attention.

Securing sufficient energy and storage capacity is deemed critical for the long-term buildout of AI infrastructure, influencing investment decisions in this evolving sector.

Matt Markevich argued that robust corporate profits act as the essential gauge for equity valuations regardless of transient market volatility.

Massive downstream investments in the AI ecosystem are expected to sustain future growth, providing a solid foundation for companies in this sector.

Analysts view this strong corporate performance as the most significant catalyst for market stability through the remainder of the year.

The surge in AI-related infrastructure spending reflects what Russell Tensor characterizes as a historic era of technological transformation.

While market volatility is anticipated due to macro news, the long-term outlook for AI remains positive, fueled by substantial infrastructure spending.

Companies are actively baking in significant future earnings through their ongoing investments, indicating confidence in AI's sustained impact.

Global rankings place Korea as the second-largest market for ETF investment, with local participants prioritizing products listed on US exchanges.

Experts are now discussing future investment strategies and trends specifically tailored for the burgeoning Korean market.

Matt Markevich noted that every one of their 83 ETFs is owned in Korea, highlighting the rapid growth of their brand as a leverage ETF specialist in the region.

The firm is actively engaging with investors and media in Korea to clarify appropriate use cases for their products, reinforcing its commitment to the market.

Investors should focus on analyzing the underlying stock's chart, rather than the leverage ETF itself, and carefully time their entry and exit points.

Proper utilization requires a clear strategy and understanding of market dynamics, as these products are not intended for passive, extended holding periods.

Market peaks near the time of launch for Korean stocks like SK Hynix shaped how investors perceived subsequent returns, Matt Markevich noted, despite the eventual sell-offs being largely coincidental.

He clarified that market sell-offs following these launches were largely coincidental rather than directly caused by the ETFs, citing historical examples like the SanDisk 2x long product to demonstrate that volatility is often situational.

Matt Markevich highlighted that approximately 10% of their total assets under management (AUM) are based in Korea, making it one of the most important markets for their expansion.

Despite recent policy issues in the region, the firm remains committed to its presence and growth in the Korean market for leveraged ETFs.

Investors must define their maximum loss and risk limits before entering any leveraged trade, according to Matt Markevich.

He emphasized the importance of clear entry and exit points for these volatile products, noting that the firm also offers short ETFs for investors betting on downside moves, reinforcing that these products are unsuitable for long-term passive holding.

Third-quarter earnings reports are crucial for setting guidance for the coming year, influencing market expectations and future stock performance, Matt Markevich stated.

The expectation of two additional Federal Reserve rate hikes remains a key macro factor, likely taking precedence over individual stock performance.

The market environment is anticipated to remain relatively quiet regarding specific events, with broader macroeconomic indicators steering investment decisions.

These are not products for 'set and forget' style investments; investors must actively monitor their positions and ensure that position sizing aligns with their specific risk appetite.