Stop Chasing the Rally in Tech Stocks Because the Fed Won’t Pivot: BlackRock

  • Investors should stop chasing the rally in tech stocks as chances of the Fed softening its rates policy are slim, according to a top BlackRock iShares strategist.
  • “The tech sector is particularly sensitive to rates and so we expect these recent gains to be transitory,” Gargi Chaudhuri said. 
  • She also warned high inflation and weak earnings estimates in the tech sector could drag on stocks.

Investors should take their profits on tech stocks and exit the sector as earnings prospects grow dim and the Federal Reserve may dash market hopes of a softer interest-rate policy, according to a top BlackRock strategist. 

Gargi Chaudhuri, head of BlackRock’s iShares investment strategy for America, said Monday that the rally in tech stocks so far this year has been fueled by investor optimism that the Fed could start easing up on its aggressive monetary-tightening campaign later this year. 

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

“We also caution against chasing the rebound in equity prices, particularly in growth-style equities and sectors like technology,” she added. 

Tech stocks kicked off 2023 on solid footing, with the Nasdaq Composite jumping 15% since the start of January,  thanks in part to rapidly cooling inflation. Household names such as Apple and Meta have led the surge, rising 22% and 46%, respectively. 

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

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

Meanwhile, Chaudhuri warned of weak tech earnings estimates as another reason to bow out of the rally. “Q4 earnings have been largely disappointing as earnings growth grows ever more negative,” she said.

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