'Cracks in the foundation': 3 leading Wall Street strategists reveal the overlooked reason why stocks are on shaky ground right now — and how to invest with a downturn looming
The S&P 500 has rebounded 5% from its mid-March lows and is up by slightly more than that for the year, while the technology-heavy Nasdaq Composite has done even better, rising 7.4% since mid-March and 15% year-to-date. Investors seem to be gaining confidence that banking turmoil is over, lower interest rates are coming, and earnings will hold up in a slowing economy.
The relative strength of the 100 largest names in the S&P 500 has overshadowed heavy losses in shares of smaller companies."When you look at the surface, what you're really seeing is some cracks in the foundation," Lerner said in a recent interview with Insider."And you're seeing a more narrow market and crowding towards perceived safety."
John Stoltzfus, the chief investment strategist at Oppenheimer, wrote in a late March note that while the recent outperformance of large caps is notable, the bigger story is how investors have flocked to growth names in the tech sector when faced with fears about a weakening economy."Expectations of slower growth and lower interest rates indicated by rising bond market prices sparked investor appetite for technology and other growth stocks," Stoltzfus wrote.
Right now, investors are hoping that a hawkish Federal Reserve will pivot from its policy of hiking interest rates to slow inflation. Lebovitz worries the Fed will hold firm and force investors to recalculate. But surprisingly, neither Lerner nor Lebovitz recommend ditching technology stocks entirely. Instead, both advise taking a balanced approach that includes growth without relying too heavily on it.is one of two sectors that he has an overweight rating on right now, along with. However, the strategy chief noted that his conviction level in his sector calls isn't high and could change soon, as he's considering upgrading defensive parts of the market.
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