Investors are cooling on stocks whose earnings prospects are far off in the future – a future made all the more uncertain after prices rose more than expected in April, keeping inflation near a 40-year high. Add a more aggressive policy response by the Federal Reserve and a possible recession and all the ingredients for a deeper tech bust are lining up.
Data on Thursday also showed producer prices rising faster than expected, adding yet further pressure on US policymakers to ramp up rate hikes. That’s fanning speculation the Federal Reserve will resort to a three-quarter point move to follow last week’s increase of 50 basis points, the biggest in two decades.
“The major vulnerabilities for growth stocks stems from the destruction of excess liquidity at a global level, and the associated higher discount rates,” said Peter Chatwell, head of global macro strategies trading at Mizuho International Plc. “Now that the monetary tightening is in full force, this should only be the beginning of the macro trend.”
What’s more, growth stocks are likely to remain under pressure amid the prospect of a more aggressive Fed, according to Citigroup Inc strategists. They reiterated their preference for cheaper value shares.
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