Why it might be time to sell tech stocks: BlackRock

It’s time to take profits in tech stocks — the sector’s first winners in 2023 — as the Federal Reserve could soon shatter interest rate hopes, says Garji Chaudhury, BlackRock’s head of investment strategy for iShares Americas.

“[We] caution against chasing a rebound in stock prices, especially in growth stocks and sectors such as tech,” Chaudhury wrote in a note to clients on Monday.

The strategist noted that “investors should prepare for the Fed to pause rather than reverse. Regardless of what the Fed’s actual final rate is, we see the Fed remain on hold for an extended period as it assesses the impact of its policies.”

The potential for interest rate cuts at some point later this year prompted a strong rebound in tech stocks in early 2023.

Since the beginning of the year, the Nasdaq Tech Composite (^IXIC) has gained a stunning 13.7%, outpacing the S&P 500 (^GSPC) by 7.7%.

Technology stocks have seen even more gains, with Meta (META) soaring 49% in 2023, Netflix (NFLX) up 20% and Apple (AAPL) up 18%.

The strong growth in tech market capitalization came despite mixed fourth-quarter earnings and forecasts this month, not to mention the constant drumming of layoff news from companies like PayPal (PYPL), Microsoft (MSFT) and Amazon (AMZN) . .

Chaudhury was particularly concerned about the pace of corporate earnings and how they seem to be out of step with the rise in the value of technology companies.

That fear is not unfounded: S&P 500 tech earnings fell 10.4% year-on-year in the fourth quarter, with technology sales down 1.7% year-over-year, according to Bank of America.

In addition, according to data from BofA, revenue estimates for technology companies in 2023 fell by 17% from June 2022 to early February.

Federal Reserve Chairman Jerome Powell looks at his phone during a meeting of the International Monetary and Financial Committee at the annual meetings of the International Monetary Fund World Bank Group in Washington, DC, October 14, 2022.  (Photo by Jim WATSON/AFP) (Photo by JIM WATSON/AFP via Getty Images)

Federal Reserve Chairman Jerome Powell looks at his phone during the annual meeting of the International Monetary Fund World Bank Group in Washington, DC, October 14, 2022. (Photo by Jim Watson/AFP via Getty Images)

Moreover, last week various members of the Fed actively prevented a possible reversal of interest rate policy.

In general, professionals such as Chaudhury believe that there is room for a pullback in high-growth market areas such as technology.

“The rally was fueled in no small part by lower rates, with the correlation between overall S&P 500 returns and 10-year Treasury yields the most negative in 20 years,” Chaudhury wrote. “The tech sector, with its high growth rate, is particularly sensitive to rates, so we expect these recent gains to be temporary.”

Brian Sozzi is the editor-in-chief and Lead at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and beyond LinkedIn.

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