BofA sees "trouble" ahead for tech stocks despite big inflows
Tech stocks may face challenges in the second half of the year despite recent inflows, as central bank liquidity decreases and investors shift from equities to bonds.
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Posted 8/25/2023, 4:21:01 PM
yahoo.com
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Stocks are facing a "real" yield problem as investors become more focused on rising real yields, which could result in lower stock prices and a hit to the P/E multiple.
Strategists at BofA Global Research predict trouble for technology stocks in the second half of the year despite the sector's recent large inflows, pointing to the correlation between central bank liquidity and the Nasdaq Composite, which has outperformed by 28% this year, as evidence.
Investors expecting a continued surge in technology stocks due to enthusiasm over artificial intelligence may face trouble as central banks tighten monetary policy, according to Bank of America strategists. The correlation between central bank liquidity and tech stocks is a cause for concern, as central bank balance sheets have shrunk while the Nasdaq continues to climb, indicating potential risks ahead.
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Tech stocks are exhibiting sell signals similar to previous market turning points, with valuations reaching unsustainable levels, a yield curve inversion indicating trouble ahead, and government funding and inflationary expectations creating economic challenges for long-duration assets.
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Technology stocks appear to be defying the impact of higher interest rates and are continuing to perform strongly.
The top 25 stocks in the S&P 500 outperformed the index in the 35th week of 2023, with tech stocks leading the way, suggesting a return of bull markets and a decrease in recessionary fears; however, market health, the balance between developed and emerging markets, and investor behavior still need to be addressed. Additionally, market correlations have dropped since COVID, and on "down-market" days, correlations are 5% higher than on "up-market" days. Market correlations also decrease during upward economic cycles. Retail investors are showing a preference for dividend-driven investing and investing in AI stocks. The global subsidies race is impacting valuations in tech and leading to supply chain inefficiencies. As a result, there are opportunities for diversification and investment in a wide variety of equities and bonds.
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