Tech stocks have enjoyed an impressive run so far in 2023, with the Nasdaq surging 18%.
But that rally could be “cracked” by a US recession, according to Bank of America.
The Federal Reserve is also unlikely to stop hiking interest rates anytime soon, a team led by Michael Hartnett warned.
This year’s sizzling rally in tech stocks could be stopped in its tracks by a recession, a Bank of America strategist has warned.
Michael Hartnett – who correctly called last year’s selloff – said in a research note Friday that he expects a “recession to crack credit and tech as in ’08,” referring to the economic slump that dragged down stocks after the global financial crisis.
Investors poured $3.8 billion into tech stocks in the week ending May 10, which represented the highest level of inflows since December 2021, according to BofA.
They’ve likely been lured to the sector by the massive returns it’s posted so far in 2023, as well as the hype over artificial-intelligence technologies sparked by the advent of ChatGPT.
The Nasdaq Composite stock market index has surged 18% year-to-date, powered higher by mega-cap names like Meta Platforms and Nvidia, each of which has jumped 96%.
That outperformance has come despite a gloomy outlook for the US economy, which many analysts have warned faces a credit crunch due to the implosion of regional lenders including Silicon Valley Bank and First Republic.
Tech stocks have also benefited from investors’ expectations that the Federal Reserve will soon wind down its interest-rate hiking campaign, with inflation cooling away from forty-year highs.
Over 90% of traders believe the central bank won’t raise borrowing costs again in June, according to CME Group’s FedWatch tool.
That’d likely benefit tech stocks – because when the Fed stops tightening, companies can borrow money at a fixed rate, boosting the future cash flows that tend to make up a core part of their future valuations.
But markets may be overly optimistic that there’ll be no future rate hikes, Hartnett warned.
It’s “maybe not a good idea for [the] Fed to pause when inflation [is close to] 5%” – still way clear of its 2% target, he said.
Read more: The stock market still faces ‘potential disappointment’ on Fed easing bets despite cooling inflation, UBS says
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Source: https://finance.yahoo.com/news/tech-stocks-superb-2023-shattered-204042101.html