A long-awaited cooling in US inflation should be good news for tech stocks. Bank of America Corp. strategists say otherwise.
Although an “inflation shock” -- the main market narrative of 2022 -- is now over, a sharp rise in services and wage costs will continue to weigh on the growth shares, strategists led by Michael Hartnett warned. They expect the so-called FAANG group of companies to underperform in the next few years.
A “multi-year derating of tech and FAANG is just beginning,” they wrote in a Nov. 10 note.
The tech cohort of Facebook-parent Meta Platforms Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google-parent Alphabet Inc. will make way for “new leadership,” from commodities, small cap value, US industrials, European banks and emerging-market resources, they said.
BofA’s views ring a note of caution after softer-than-expected consumer price data on Thursday spurred the Nasdaq 100’s best day since March 2020. Tech shares -- which tend to suffer as rates rise since they mean a bigger discount for the current value of future profits -- have been hammered this year as the Federal Reserve embarked on an aggressive tightening cycle to curb inflation.
The inflation print was the most anticipated data of the month, with investors holding off making big bets in the run-up to it. In the week to Nov. 9 -- a day before the report -- global equity funds had outflows of $4.6 billion, according to Bank of America citing EPFR data show. US funds had their first redemptions in five weeks.
In the same period, investors poured $3 billion into global bond funds and $2.4 billion into cash.
Here are some more insights from the report:
• In Europe, equity funds saw outflows for a 39th straight week.
• By trading style, US growth and small cap had inflows, while value and large cap saw redemptions.
• By sector, health care and energy had the biggest additions, while $1 billion left tech stocks.
--With assistance from Michael Msika.
This article was provided by Bloomberg News.