Some investors are looking for bargains in beaten-down growth and tech stocks, betting they will shine as the Federal Reserve fights to slow the US economy and tame red-hot inflation.
Underpinning those moves is the perception that the Fed’s fight against inflation will keep interest rates climbing, eroding the future cash flows that growth stocks are heavily valued on. Value stocks, meanwhile, have found support from a strong economy and surging commodity prices. “If these recession fears grow, then you are going to have a big shift away from value stocks,” said Esty Dwek, chief investment officer at FlowBank, who has been increasing her stake in technology stocks. “Sustainable earnings growth … will become more important again.”
Earnings season kicks off next week, giving investors a closer look at how companies have fared at a time of heightened geopolitical uncertainty and rising commodity prices. Also on tap is the latest US consumer prices report, due out on Tuesday. The S&P 500 is on track to close down 1% this week, as worries over a more aggressive Fed slow a rally that saw the index pare its year-to-date losses last month.
“The Fed is telling us … that fighting inflation has become their priority and the only way they can fight that is to slow down demand,” he said.