By Paul R. La Monica, CNN Business
For some time now, many investment experts have predicted that there will be a shift from big tech to value stocks. It could finally happen – although tech stocks might not go down without a fight.
The broader market fell on Monday: The Dow Jones fell about 163 points, or 0.5%, while the S&P 500 fell 0.1%. Both indices, however, closed well after their lows for the day. Meanwhile, the Nasdaq managed to end the day with a slight gain, a significant turnaround after falling more than 2% at one point on Monday.
Growth stocks in particular have been battered so far this year amid fears that inflation could slow the economy.
So-called FAANG stocks – the owner of Facebook Meta Platforms, Apple, Amazon, Netflix and the owner of Google Alphabet – are all in the red for 2022. As are Microsoft and chip giant Nvidia, while Elon Musk’s Tesla is flat.
The Nasdaq is now 8% below its recent all-time high, putting it in danger of falling into a correction, defined as 10% below its most recent high. The Dow Jones and S&P 500 are each about 3% below their peak levels.
The SPDR Portfolio S&P 500 Growth ETF is already down 4% in 2022 while the iShares Russell 2000 Growth ETF, which owns shares of smaller growth stocks, has plunged 6.6% since the start of the year. ‘year.
“While the first week of the year is any indication of what to expect over the next few months, investors will need to be nimble in 2022 and be aware of any disproportionate exposure they may have to growth stocks,” said Solita Marcelli, Head of Investments. head of the Americas at UBS Global Wealth Management, in a report released on Monday.
It should be noted that two key value sectors, financials and oil companies, are booming.
The Invesco KBW Bank ETF was flat on Monday and is up 10% this year. Banks benefit from higher interest rates because it makes the loans more profitable.
The yield on the benchmark 10-year US Treasury bond reached its highest level since January 2020, briefly exceeding the 1.8% level.
Investors will be eager to see what mega-banks JPMorgan Chase, Citigroup and Wells Fargo say about higher bond yields when they release their results on Friday.
And the Energy Select Sector SPDR ETF, which owns Exxon Mobil, Chevron, ConocoPhillips and other oil giants, is up 10% this year, with crude prices rising from around $ 72 per barrel to $ 78 per barrel. last month.
So not all sectors will be hit by inflation, and it looks like savvy investors are starting to make changes to their portfolios as the big winners of the recent bull run are finally starting to lose their shine.
“Tech stocks have dominated the market for most of the past two years,” analysts from Morgan Stanley Wealth Management’s global investment committee said in a report on Monday. They noted that falling interest rates and the trend of working from home during the pandemic have helped boost technology.
But the prospect of higher rates will be a problem for tech and other growth stocks in the future.
“The tightening in global politics has exceeded Covid’s estimated record on economic growth, and the technology has started to underperform,” Morgan Stanley analysts wrote, adding that now is the time investors should trying to actively pick stocks instead of passively relying on big indexes that are dominated by technology leaders.
UBS’s Marcelli also noted that “the valuations of growth companies are expected to compress faster relative to value stocks” as the Fed hikes rates.
“And that’s exactly what happened in the first week of the year,” she said, adding that “the more speculative, very fast-growing, unprofitable technology companies have fallen further. more “than the best Nasdaq technologies.
Investors also continue to shy away from cryptocurrencies. Bitcoin prices fell below $ 40,000 on Monday morning before rebounding a bit. Ethereum prices fell below $ 3,000 before rebounding.
Bitcoin has now plunged more than 10% over the past week, while ether has fallen almost 20%.
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