‘They are in a bear market rally’: Tech’s on a roll, but some market pros aren’t convinced
One of 2022’s worst-performing sectors is making quite a turnaround — investors are interested in tech again, after shunning it for the better part of last year. The tech-heavy Nasdaq Composite has so far been this year’s best-performing Wall Street index, having gained about 14.5% since the start of the year. The recent buzz around artificial intelligence has driven much of that feelgood sentiment on tech. The viral success of ChatGPT — an AI chatbot developed by Microsoft -backed OpenAI — reignited excitement in tech stocks after the well-documented struggles of the metaverse. But some investors are skeptical about the tech rally. Bill Smead, chief investment officer at Smead Capital Management, for example, says it has the hallmark of a bear market rally. “We believe that enthusiasm for aggressive technology-oriented stocks in the last couple of months is exactly what you get in a bear market rally. The history of the stock market is, when there is a major financial euphoria event — and boy, we had one in 2021 — you get a bear market and you go down sharply for a while and then you get this violent rally,” Smead told CNBC’s ” Street Signs Asia ” on Tuesday. Smead’s comments came hours after shares of Palantir popped as much as 19% in extended trading Monday after the company released fourth-quarter earnings that beat analysts’ estimates on top and bottom lines. “If Palantir is rallying, that would go right along with it. Whether it be Tesla or any of the aggressive growth stocks, they are in a bear market rally and they are going to try to convince people that the bear market is over. “And that’s what a bear market rally looks like it. It looks like a bull market, but it’s just designed to lay the groundwork for the next miserable stretch when that rally gets over,” he added. JPMorgan has also turned more bearish on the tech sector, just months after it turned positive on the sector in October. “Technology is moving from secular to cyclical. Despite our view of peaking bond yields from October, when we advised to close the shorts on tech, the sector is unlikely to be a sustainable leader; it is still priced not far from all-time highs. This is not a great starting point,” JPMorgan’s strategists, led by Mislav Matejka, wrote in a Feb. 13 note. “Further, we do not believe that tech will be immune to any potential earnings disappointments in a downturn, in contrast to the past decade,” he added. On top of that, recent price movements of tech stocks that delivered earnings beats suggest investors have already priced in the outperformance. Wells Fargo analyst Christopher Harvey wrote in a Feb. 9 note that more than half of the beats for the tech sector this earnings season are underperforming. This implies that underlying expectations may be elevated for the sector, he added. A lost decade for tech? Bernstein issued a similar warning earlier this month, as it declared that the tech stock boom of the last decade is now over. Tech companies’ valuations are elevated, while expectations for growth are modest. That could mean tech is entering a period of tepid growth, Toni Sacconaghi, senior research analyst at Bernstein, said in a note on Feb. 6. “We worry that relative stock performance for tech over the next several years risks being more muted, akin to the lost decade following the tech bubble bursting,” he said. “Importantly, we believe that stock picking within tech will likely matter much more over the next five years, and it may take a new set of tech leaders to emerge to drive tech’s next big rally.” — CNBC’s Michael Bloom and Tanaya Macheel contributed to reporting.
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