According to fund managers and strategists, investors are shifting their focus beyond the recent recovery of the U.S. technology sector and instead seeking longer-term returns. They are taking into account potential challenges posed by higher interest rates and an uncertain macroeconomic outlook.
The tech-heavy Nasdaq Composite has experienced a 21% increase this year, surpassing the S&P 500's 9% gain, largely due to stronger-than-expected results and cost-cutting measures implemented by large firms. Additionally, there is growing anticipation that the U.S. Federal Reserve is nearing the end of its rate hike cycle, further boosting the Nasdaq's performance.
Abigail Yoder, U.S. equity strategist at J.P. Morgan Private Bank, anticipates that other industries will offer more attractive prices and stronger long-term returns compared to the current market.
During the Reuters Global Markets Forum, Yoder stated that there is a tendency for the sector that emerges as a leader in one cycle to not maintain its lead in the subsequent cycle.
The current performance of the Nasdaq signifies a significant improvement compared to 2022, which experienced a 33% decline, marking it as the worst year since the 2008 financial crisis. Despite this recovery, concerns surrounding rising interest rates and the possibility of a recession in the U.S. economy remain unresolved.
Jonathan Mondillo, the head of North American fixed income at abrdn, mentioned that they are avoiding sectors that are more sensitive to interest rates, such as the technology sector.
Jonathan Duensing, head of U.S. fixed income at Amundi, suggests that adopting a more conservative and selective approach in fixed income portfolios is a preferable choice for those who anticipate an economic slowdown in the second half.
Abrdn's base scenario anticipates a probable recession in the fourth quarter of 2023. In light of this, Mondillo expresses a preference for credit investments in defensive sectors like healthcare and consumer staples, as opposed to technology.
Likewise, Yoder identifies healthcare as an appealing defensive choice amidst a recession, highlighting the potential for mid-cap stocks to outperform their larger counterparts.