Tech sell-off continues on inflation fears

Lo Toney, Plexo Capital Founding Managing Partner joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

ZACK GUZMAN: Let's bring in our first guest for the hour. We've got Lo Toney, Plexo Capital Founding Managing Partner. Lo, it's good to talk to you today. Certainly, we have seen tech really get hit over the last several days-- you've pointed it out-- and inflation jitters certainly rattling investors there. You think the sell-off is justified?

LO TONEY: Well, I think what we're seeing is the first real data to confirm what everyone anticipated was going to happen, which is the threat of rising inflation. So your comments earlier on the CPI-- yeah, April, you know, hitting 3.5%, 4%, I mean, that's well over what the Fed's target was of 2%. So I think that, coupled with the fact that we're even seeing Secretary of Treasury Janet Yellen even hint that interest rates might have to go up, and you know, the government usually never kind of interferes with the Fed's activities-- so I think all of this together is really putting some pressure on the market, in particular technology stocks, given their high PE multiples.

Those had attrac-- those stocks had attracted large amounts of when we were in this low interest rate environment and everyone was looking for ways to drive returns. Now with interest rates going up, inflation fears coming up, now we're just starting to see the sell-off happen. And of course, those high PE growth stocks that are typical in the technology space are kind of the first ones to really get hit.

ZACK GUZMAN: Yeah, I mean, as much as all that seems to make sense here, we've still got the 10-year at 1.68%-- moving up by about 6 basis points today. Of course, the Fed tracks PC-- that's what they use for their 2% inflation target. That's still at 1.8%. We'll get the updates on that later on.

But I mean, when you about this reaction, as we're seeing it play out today and the wake of yesterday, I mean, do you think that it could maybe be a bit overdone? I mean, at what point do you see this kind of settling in? Because this is a theme we've seen play out. It kind of comes in waves, these inflation risks.

And if today's print was as bad as everyone's making it out to seem, you know, it seems in line with what we saw yesterday. How much farther do you think we have to go in terms of the beaten down of these tech names?

LO TONEY: Yeah. That's a very good point. I think what we have experienced is these massive swings. And, look, I think part of this has to do with the way that information is flowing, the return of the retail investor. I mean, we're just seeing these movements exacerbated in ways that we really haven't before. Plus we, have a different set of dynamics that were also operating with-- a lot of the macro factors that we would just typically see and be able to have a settling point. We're just in a situation where there's a lot of different factors that I think are influencing.

And, look, we've been in such a low interest rate environment for such a long period of time-- I mean, we're seeing numbers and we're seeing kind of these fears as indexed by how investors are viewing inflation. We're seeing numbers that we haven't seen in over a decade. So yeah, I do think that, look, this is just the market reacting-- maybe a little bit over so, to your point.

AKIKO FUJITA: And, Lo, what opportunities are you seeing in the tech space right now on the back of this sell-off? I mean, imagine a lot of people looking at this saying, maybe this is a time to kind of get in on the dip. You mentioned the concerns around the high PE multiples, but I wonder if you look at especially these big tech names, if that growth story is still intact for you.

LO TONEY: So for us, we are big believers primarily in the private markets of certain drivers based on what's happened in particular over the past 14 months. And when we look at the billions of dollars that were invested into the infrastructure required to enable remote work, to enable a distributed team, we believe those trends will continue long-term.

More importantly, I always go back to something that Marc Andreessen said over a decade ago-- that software is eating the world. Software has now reached the point where it ate the world. And every large company is now becoming a software development company.

So the opportunities that we really like are those tools that enable that scarce resource of software developers to be able to produce more code to be able to facilitate the processes necessary and also provide differentiation for companies. The tools that are available in the cloud from places like Amazon, from Microsoft, even Alphabet, those allow for a higher level of efficiency to increase software developer output.

So those are the things that we really like. It's really important for companies today to not only have the ability to take best of breed software off the shelf and integrate it into their operations, but we're also seeing more companies use their software development teams to also create bespoke experiences that allow them to offer a differentiated experience to their customers.

That's going to be really important. The software developers need the tools to help them design, create, test, and deploy that type of opportunity.

AKIKO FUJITA: Yes, some good context there in terms of the back-end demand that we're seeing. Lo Toney, Plexo Capital Founding Managing Partner, it's good to talk to you today.