If the Fed does maintain an aggressive strategy of hikes, the yield headwind could grow more pronounced. And while rapidly climbing sales led to these stocks receiving nosebleed valuations, the prospect of a recession has diminished their attractiveness on growth characteristics, giving investors another reason to focus on companies with positive earnings and cheaper valuations.
Jim Awad, senior managing director at Clearstead Advisors, expects investors will sort tech stocks into two categories: companies with durable earnings and cash flow, which should regain their losses over time, and then the speculative, unprofitable ones.
“Investors will remain gun shy about the second class of company,” he said. “They got so overvalued, they’ve fallen so much, and some investors have been devastated. The momentum game is over. They can maybe bounce from here, but they won’t be market leaders the way they were before the peak.”
--With assistance from Subrat Patnaik and Thyagaraju Adinarayan.
This article was provided by Bloomberg News.