Morgan Stanley’s (NYSE: MS) showed positive momentum in previous trading session as one of the most well-known pessimistic voices on US equities, Michael Wilson, predicts that the tech sector will drop to new lows because the 20%+ surge in stock prices isn’t sustainable.
With the failure of major US institutions, investors have deserted economically vulnerable industries like banks, and the Nasdaq 100 has risen into a bull market. Although he disagrees with that premise and believes that utilities, staples, and health care have a superior risk-reward profile, Wilson claimed that this rotation is occurring in part because IT is being perceived as a classic defensive sector.
The analyst, who placed first in last year’s Institutional Investor survey after accurately predicting the stock market selloff, claimed in a note that “tech is really more pro-cyclical and bottoms coincidentally with the wider market in weak markets.”
Although the sector traditionally has a period of robust outperformance following the trough a time when its cyclicality works in its favor on the upside, “we suggest waiting for a sustained bottom in the wider market before adding to tech more aggressively,” he added.
Wilson said that investors would be disappointed by the idea that the Federal Reserve will soon stop its monetary tightening. We do not consider the recently increased bank funding program to be a form of quantitative easing that will ultimately stimulate risk assets, the author wrote.
Mislav Matejka and other JPMorgan Chase & Co. analysts said that technology “may not be a smart location to position in fundamentally anymore.” Due to earnings uncertainties, unattractive values, and extremely high price relationships in the long term perspective, the sector will stop significantly outperforming, leaving the strategists worried.
A decline in tech stocks could have a huge influence on the market after the sector helped the S&P 500 Index gain 3.5% in March amid worries that a financial crisis would cause GDP to sharply worsen. The top gainers in the benchmark last month were Microsoft Corp., Apple Inc., and Nvidia Corp., while the main losers were banks.
