Investors are tiptoeing back into shares of U.S. tech stocks following a sharp tumble, even as some still-elevated valuations threaten to punish dip buyers if markets stumble again.
Still, even bullish investors are proceeding with caution. While valuations have edged lower, the tech sector still trades well above its 10-year average of 20.7. Its 32 per cent valuation premium over the broader S&P 500 is more than twice as wide as it has been over the last decade. Those valuations could make the sector vulnerable to future turbulence.
“There’s stocks that we like, we think the earnings are going to hold up and valuations have improved,” said Chuck Carlson, chief executive officer at Horizon Investment Services. “When you get that recipe, it’s worth putting some money back in to them.” While economic worries have been components of the recent sell-off, investors could gravitate toward megacap tech stocks if those concerns persist, said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.
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