Growth stocks in particular have been hit hard so far this year on fears of slowing inflation.
The Nasdaq is now 9% below its most recent all-time high, putting it in danger of slipping into a correction of 10% below its most recent high. The Dow and S&P 500 are 3% and 4% below their peak levels, respectively.
Solita Marcelli, chief investment officer, said: “If the first week of the year is any indication of what to expect in the coming months, investors must remain nimble in 2022 and be mindful of any excess exposure they may have to growth stocks. ,” UBS Global Wealth Management’s head of the Americas said in a note on Monday.
Notably, two key value sectors, financials and oil companies, are booming.
The yield on the benchmark U.S. 10-year Treasury note rose to its highest level since January 2020, briefly topping 1.8%.
“Technology stocks have led the market for much of the past two years,” analysts at Morgan Stanley Wealth Management’s Global Investment Committee said in a note Monday, pointing to lower interest rates and lower interest rates during the pandemic. The work-from-home trend has helped propel tech stocks.
But the prospect of higher interest rates going forward will be an issue for tech and other growth stocks.
“Global policy tightening has outweighed the estimated damage to economic growth from Covid, and tech stocks have begun to underperform,” the Morgan Stanley analysts wrote, adding that now is the time for investors to try to pick stocks aggressively rather than passively Time to rely on large indices. Led by technology leaders.
UBS’ Marchelli also noted that with the Fed raising rates, “valuations of growth companies should compress faster relative to value stocks.”
“That’s exactly what happened in the first week of the year,” she said, adding that “more speculative, very fast-growing, not-for-profit tech companies fell even more than” the top tech companies on the Nasdaq.
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