Investors Shift Focus Away from US Tech Sector Amid Uncertainty
Investors are redirecting their attention beyond the rebound of the U.S. technology sector this year, looking for longer-term returns elsewhere due to concerns about higher interest rates and an uncertain macroeconomic landscape, according to fund managers and strategists.
While the tech-heavy Nasdaq Composite has seen a 21% surge this year, outperforming the S&P 500’s 9% rise, driven by strong earnings and cost-cutting measures from major companies, along with expectations of an upcoming end to the U.S. Federal Reserve’s rate hikes, investors are now seeking better opportunities in other sectors offering more attractive valuations.
Abigail Yoder, U.S. equity strategist at J.P. Morgan Private Bank, explained that historically, the sector leading in one cycle does not necessarily lead in the following cycle.
Although the Nasdaq’s current performance marks a significant turnaround from its 33% drop in 2022, the risks associated with higher interest rates and a potential slowdown in the U.S. economy have not dissipated.
Jonathan Mondillo, head of North American fixed income at abrdn, stated that they are avoiding more interest rate-sensitive sectors like tech, anticipating an economic slowdown in the second half. He emphasized the importance of cautious and selective positioning across fixed income portfolios.
Jonathan Duensing, head of U.S. fixed income at Amundi, supported this approach, highlighting the need for careful selection within the tech sector. Duensing stated that their preference lies in defensive sectors such as healthcare and consumer staples due to the likelihood of a recession in the fourth quarter of 2023.
Yoder also sees healthcare as an appealing defensive option in the event of a recession, particularly mid-cap stocks that are expected to outperform larger counterparts. She noted that mid-caps tend to exhibit higher quality characteristics and show good performance consistency over time.