Decline in Tech Stocks Could Be the Next Challenge for Wall Street
Bank of America Warnings: Risks Facing Investors Increasing Their Growth Stock Holdings
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Strategic analysts at Bank of America have warned that investors relying on the continued dominance of tech giants to drive stock market gains may face significant challenges when other sectors start to recover and catch up.
In a memo written by experts including Michael Hartnett and Elias Galos, they pointed out that the current outperformance of growth stocks in terms of value, along with the improvement in market breadth — a technical analysis method that measures the strength or weakness of movements in a major stock index — could be the next challenge for investors, potentially putting them against the prevailing market trend.
Galos added via email that other potential tough spots on the horizon include a decline in U.S. stocks and a widening gap between investment-grade bond yields compared to Treasury bonds.
A More Balanced View
Strategists have taken a more neutral stance on the rally that
pushed the S&P 500 to a record high this year,
after it had been trending significantly downward in 2023.
The gains were mainly driven by a rise in shares of major technology companies,
which recently received an additional boost from a strong earnings report from Nvidia.
Data released last week by Goldman Sachs’ primary brokerage unit showed that hedge
funds’ exposure to major tech companies reached an all-time high.
Meanwhile, the S&P 500 Value Index, which tracks value stocks, has risen less than 4% this year,
compared to a 15% jump in the Growth Index.
The S&P 500 Equal Weight Index — which mitigates the impact of major tech companies —
is trading at its lowest level since 2009 relative to the benchmark index, according to Bloomberg data.
Decline in Tech Stocks Could Be the Next Challenge for Wall Street