- Investors not bothered by change in timing of rate cuts: BofA
- Magnificant Seven technology stocks driving S&P 500 returns
The rush into technology stocks is resembling the bubble of 1999, reflecting an assumption that the economy will perform strongly despite tighter monetary policy, according to Bank of America Corp. strategists.
While falling yields were pushing the Nasdaq higher in the fourth quarter, the script has now flipped to both rising over the past four weeks. This price action would typically only occur after a recession, such as in 2009 or the dot-com bubble around the turn of the century, BofA strategists led by Michael Hartnett wrote on a note.
Investors aren’t too bothered about whether the Federal Reserve cuts rate in March or May, he said. The market will view the Fed as bullish for asset prices until inflation picks up again, reducing the scale of rate cuts, or if unemployment rises, which would be a “big macro and market game-changer.”
The so-called Magnificent Seven technology stocks have led the Nasdaq 100 Index’s 54% surge last year amid expectations of imminent rate cuts, a solid economy and optimism about artificial intelligence. The rally has extended into 2024 as investors continue to bet on big tech, with stronger-than-expected results from Meta Platforms Inc. and Amazon.com Inc. likely to provide more momentum.
Federal Reserve Chair Jerome Powell this week pushed back on market bets for a rate cut in March on concerns that inflation remains higher than the central bank’s 2% target.
Hartnett notes that 75% of investors expect a soft landing and 20% a no-landing scenario. Yet, while a soft landing should support a broader range of equities, the Magnificent Seven accounted for 45% of the S&P 500’s return in January, reflecting a “leaning toward no landing/bubble,” he said.
Hartnett’s view on the rising dominance of tech stocks resembles a warning by JPMorgan Chase & Co. strategists earlier this week that the US equity market is increasingly drawing similarities with the dot-com bubble.
Meanwhile, equities continued to drive the week’s fund flows.
US stocks attracted about half of the $20.1 billion of inflows for stocks, with Chinese equities at $6.3 billion.
Separately, the BofA Bull & Bear Indicator, an investor sentiment gauge, surged to a two-and-a-half year high, but remained far from a contrarian sell signal, Hartnett said.
Written by: Michael Msika @Bloomberg
The post “BofA’s Hartnett Says Stock Markets Are Behaving Like Dot-Com Era” first appeared on Bloomberg
BullsNBears.com was founded to educate investors about the eight secular bear markets which have occurred in the US since 1802. The site publishes bear market investing recommendations, strategies and articles by its analysts and unaffiliated third-party and qualified expert contributors.
No Solicitation or Investment Advice: The material contained in this article or report is for informational purposes only and is not a solicitation for any action to be taken based upon such material. The material is not to be construed as an offer or a recommendation to buy or sell a security nor is it to be construed as investment advice. Additionally, the material accessible through this article or report does not constitute a representation that the investments or the investable markets described herein are suitable or appropriate for any person or entity.