Bank of America’s Michael Hartnett Warns of Tech Stock Fading Risk amid Cooling US Economy
Tech stocks in the US face further risk amid cooling economy, says Bank of America strategist
The recent rally in the biggest US technology stocks could be facing more headwinds if the US economy continues to cool, according to Bank of America Corp.’s Michael Hartnett.
Hartnett, who is bullish on bonds for the second half of 2024, has warned that signs of an economic slowdown could trigger a rotation into stocks that have lagged behind the pricey tech mega-caps this year.
In a note on Friday, Hartnett expressed concerns over the global economy, describing it as “ill,” and suggesting that a negative jobs report could lead to a decline in big tech stocks’ dominance.
The upward trajectory of technology stocks such as Apple Inc., Amazon.com Inc., and Microsoft Corp. has been disrupted in the past two weeks, with investors shifting their focus to small caps on speculation that the Federal Reserve might start cutting rates soon.
Since reaching a record high on July 10, about $2.6 trillion has been wiped off the market capitalization of firms in the tech-heavy Nasdaq 100 Index, with concerns also mounting about the payoff for significant investments in artificial intelligence.
Despite this, Hartnett noted that some equity bulls view the recent correction as healthy, as the market has not fallen below critical levels. While the Nasdaq 100 has fallen by approximately 9% since mid-July, it is still up over 30% from its low point in October 2023.
US equity futures were on the rise on Friday, potentially recovering some losses. Bank of America’s custom bull-and-bear indicator also increased to 6.9 in the week through July 24, reaching its highest level in over three years. Hartnett warned that a reading above 8 could trigger a contrarian sell signal, which might occur if fund managers’ equity allocations rise, cash levels decrease, and a rally in underperforming stocks leads to an improvement in market breadth.
As investors navigate these uncertain times, the future of tech stocks in the US remains a focal point of interest and concern.