![]() ![]() Others believe the rally in equities is due for a pause. The S&P 500 tech sector now trades at 28.2 times forward earnings, from 19.6 at the start of the year.īurns McKinney, senior portfolio manager at NJF Investment Group, owns shares of Apple and Microsoft but has been adding to dividend-paying positions in healthcare, financials, and energy in anticipation that megacap names start to falter.įor megacap stocks, "the risk-reward is not as good as it was a quarter ago," he said. Still, some investors have been looking outside of tech stocks for further gains, wary of rising valuations. Some smaller companies have delivered as well, with shares of streaming device maker Roku Inc soaring on July 28 after it gave an upbeat quarterly revenue forecast. Optimistic forecasts from Meta Platforms and results from Alphabet earlier this week bolstered the case for those who believe megacaps’ lofty valuations are justified. The tech-heavy Nasdaq 100 is up nearly 44 percent year-to-date, while the S&P 500 information technology sector has gained nearly 46 percent. Many are also assessing the durability of a rally in tech stocks, which has been fueled in part by excitement over developments in artificial intelligence. "It's a 50-50 chance that we'll get Goldilocks or we'll get a stronger downturn," he said. Kalman, of Miramar Capital, believes there’s a growing chance the Fed may need to raise rates beyond their current 5.50 percent threshold and hold them there for longer than expected, an outcome he worries could dampen the economy and hurt risk assets. "For markets to continue to trade higher, the soft landing must be a soft landing, not a reacceleration, because if housing and consumer spending accelerate from here, the Fed will have to raise rates a lot more," wrote Torsten Slok, chief economist at Apollo Global Management. While comparatively strong employment data has been a driver of this year’s stock rally, signs that the economy is growing at too rapid a pace could spark worries that the Fed will need to raise rates more than expected. Futures markets on July 28 priced a nearly 73 percent chance that rates don’t rise above current levels through the end of the year, according to CME’s FedWatch tool, up from 24 percent a month ago.Ī test of the economy comes next week, when the U.S. Until we see some set of data that scares them it's hard to see how that changes," said Bob Kalman, senior portfolio manager at Miramar Capital.Īt the same time, investors believe the Fed is unlikely to deliver much more of the monetary policy tightening that shook markets last year. "The market has fully accepted the narrative that it wanted, which is Goldilocks. Policymakers raised rates by another 25 basis points to their highest level since 2007 at the central bank's July 26 meeting and left the door open to another increase in September. That view gained further traction in the past week, when Chair Jerome Powell said the central bank's staff no longer forecasts a US recession and that inflation had a shot of returning to its 2 percent target without high levels of job losses. One key factor driving stocks higher has been the view that the economy is moving towards a so-called Goldilocks scenario of ebbing consumer prices and strong growth that many believe is a healthy backdrop for stocks. It has risen nearly 10 percentage points since June 1, over which time the US government avoided a debt ceiling default and consumer prices cooled, while growth stayed resilient. The S&P 500 is up nearly 19 percent this year after gaining around 1 percent in the past week. A resilient US economy and expectations of a nearing peak in the Federal Reserve’s monetary policy tightening cycle are emboldening stock investors, even as worries persist over rising valuations and the potential for inflation to rebound. ![]()
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