Investors banking on technology titans to perpetuate the equities rally might face a turbulent journey when other sectors start to gain ground, warn strategists at Bank of America Corp.
The resurgence of value over growth stocks as market breadth expands could become the next “pain trade” for investors, argue strategists Michael Hartnett and Elyas Galou in a recent note. Additional pressure points looming on the horizon include a potential decline in US equities and a widening of investment-grade bond spreads, Galou elaborated via email.
The strategists have adopted a more neutral stance on the rally that has propelled the S&P 500 Index to unprecedented heights this year, following a largely bearish outlook in 2023. Gains have predominantly stemmed from a surge in tech mega-cap stocks, which recently received an additional boost from Nvidia Corp.’s robust earnings report. Data from Goldman Sachs Group Inc.’s prime brokerage this week revealed that hedge funds’ exposure to Big Tech has reached an all-time zenith.
Meanwhile, the S&P 500 Value Index has inched up less than 4% this year, a stark contrast to its growth counterpart’s 15% surge. The S&P 500 equal-weighted index—which diminishes the influence of tech behemoths—is trading at its lowest level relative to the benchmark since 2009, based on Bloomberg-compiled data.