Wall Street experts are going all in on this big stock call for 2022: high-growth tech favorites will cease to be leaders, thanks to the bond selloff at the start of the new year, reports an article on Yahoo! News. Wells Fargo Securities and Morgan Stanley are already telling their clients to bet against high-flying tech stocks that did great during the low-rate era and instead go for cheaper stocks that will benefit as the economy recovers from the pandemic.
U.S. 10-year yield rose this week to hit its highest level in 6 weeks at 1.65%. But the Nasdaq 100, weighty with tech, fell 1.4%. This could lead to one of the most significant market rotations in years: if real yields improve, it would create a harder environment for tech. And if real rates rise, signaling optimism about the economy, that could line up cyclical stocks such as big banks, industrials and transports for bigger gains than the high-flying stocks that did well during the pandemic, the article contends. And while tech stocks are often favored because of their long-term prospects, they’ve shown to be sensitive to bond swings with the higher rates bringing less worth to their future profits.
A strong labor market in the U.S. could put the Fed on track to tighten faster, pushing them into a more aggressive position if they think real rates of interest are too low. So as inflation expectations come down, interest rates will go up, a situation that gets worse the more expensive the stock.
However, not all strategists agree that real rates will disrupt the market enough to hurt stocks. Scott Thiel of BlackRock said in an interview, quoted in the article, “We’re not expecting the pace of change in real yields to be material enough to impact equity prices” this year.