Source: Wall Street News
Investors believe that as the risk of a recession in the US economy intensifies, stocks with good prospects for profit growth will provide support, and the rebound in US technology stocks may expand further.
On May 29, Bloomberg's latest Markets Live Pulse survey data showed that of the 492 market participants surveyed, about 41% said that this year's highest return would come from buying high-quality stocks focused on profitability, including buying large technology stocks such as Apple and Microsoft; and selling stocks that did not perform well in these fields.
In a situation where the economic situation is uncertain, technology stocks with strong cash flow and good prospects for revenue growth are highly attractive. Tech companies' stock prices soared as markets embraced profit growth and shied away from economically sensitive industries. Currently, the NASDAQ 100 index, which is dominated by technology stocks, has recovered more than half of its decline from the end of 2021 to 2022, and with the rise of the wave of artificial intelligence AI, the index's rebound is gaining more and more momentum.
Some strategists have also become more optimistic. Citigroup raised its technology stock rating to increase its holdings last week, and raised the US stock rating to neutral. Citi strategists expect AI to boost the stock market and the Federal Reserve will end interest rate hikes.
However, investors' demand for technology stocks is making such transactions more expensive. Technology stocks are the most expensive in the S&P 500 index. Bloomberg pointed out that tech stock valuations are close to their highest level since the first quarter of 2022. So while respondents thought tech stocks would outperform the market, analyst Christopher Cain said, “This isn't a free lunch. A lot of the time, the price already reflects that.”
This sentiment made a small number of investors think that this is a situation where US stocks will also experience “weak reality, strong expectations”, that is, expectations for economic recovery are high, but in reality it may be an extremely weak recovery that falls short of expectations. Previously, some organizations believed that the AI digital economy TMT section in A-shares has been in this pricing environment since November of last year.
In terms of the general market, the S&P 500 index has fallen into one of the narrowest fluctuation ranges in many years. Most respondents expect the index to fluctuate slightly or not rise from now on.
Furthermore, 42% of respondents said that the recession is the biggest risk facing US stocks in the coming year; followed by interest rates, accounting for 23%.
Bloomberg analyst Gina Martin Adams believes this isn't a normal environment. Anticipating a recession is a very unique situation that affects investors' thought processes and limits their vision.
Editor/jayden