Stop chasing the rally in tech stocks because the Fed won’t pivot: BlackRock

  • Investors should stop chasing the rally in tech stocks as the chances of the Fed easing its rate policy are slim, according to a senior strategist at BlackRock iShares.
  • “The technology sector is particularly rate sensitive and therefore we expect these recent gains to be transitory,” said Gargi Chaudhuri.
  • She also warned that high inflation and weak earnings estimates in the tech sector could hurt equities.

Investors should take their profits in tech stocks and exit the sector as earnings prospects dim and the Federal Reserve could dam market hopes for a softer interest rate policy, according to a senior BlackRock strategist. .

Gargi Chaudhuri, head of BlackRock’s iShares investment strategy for America, said Monday that the rebound in tech stocks so far this year has been fueled by investor optimism that the Fed could start to ease its aggressive tightening campaign. money later this year.

But, according to Chaudhuri, those gains are unlikely to last. “The technology sector, with its high growth rates, is particularly rate sensitive and therefore we expect these recent gains to be transitory,” she said in a note.

“We also caution against chasing recovery in stock prices, particularly in growth-style stocks and sectors such as technology,” she added.

Tech stocks started 2023 on solid footing, with the Nasdaq Composite jumping 15% since early January, thanks in part to the rapid cooling of inflation. Familiar names like Apple and Meta led the rise, rising 22% and 46% respectively.

But that’s no reason to think the US central bank will start easing its monetary policy, according to Chaudhuri. “The market is listening to what the Fed doesn’t say, not what it does, but doing so risks confusing the Fed’s desire to preserve optionality with an implicit intention to cut,” Chaudhuri said.

“We believe investors should position themselves for the Fed to pause and not pivot. In contrast to current market prices, we don’t believe the Fed will cut rates in 2023 as we believe inflation will remain persistently high,” he added. she. A Tuesday report is expected to show a further slowdown in inflation, but a strong US jobs report kept investors wary that consumer price pressures could pick up again.

Meanwhile, Chaudhuri warned of weak technology earnings estimates as another reason to pull out of the rally. “Fourth quarter earnings were quite disappointing as earnings growth becomes increasingly negative,” she said.

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