(Boursier.com) — The rush into tech stocks resembles the 1999 bubble, reflecting the assumption that the economy will perform very well despite tighter monetary policy, according to Bank of America strategists. While falling yields pushed the Nasdaq higher in the fourth quarter, the scenario has now reversed and both have risen over the past four weeks. This movement in prices would generally only occur after a recession, such as in 2009, or during the Internet bubble at the beginning of the century, say Michael Hartnett’s teams cited by ‘Bloomberg’.
Investors are no longer too concerned about whether the Federal Reserve will cut rates in March or May. The market will view the Fed as bullish on asset prices until inflation picks up, which would reduce the size of rate cuts, or if unemployment rises, which would constitute a “big macroeconomic change and Steps”.
According to BoA, 75% of investors expect a soft landing for the world’s largest economy and 20% a ‘no landing’ scenario. Yet even though a soft landing should support a broader range of stocks, the Magnificent Seven accounted for 45% of the S&P 500’s return in January, reflecting a “trend toward no landing/bubble.”
An opinion shared at the start of the week by strategists at JP Morgan Chase & Co, who believe that the American stock market presents more and more similarities with the Internet bubble. The share of the top ten stocks in the MSCI USA index, including all the so-called ‘Magnificent Seven’ technology stocks, reached 29.3% at the end of December, just below the all-time peak of 33.2% in June 2000. Additionally, only four sectors are represented in the top 10, compared to a historical median of six, according to strategists. Although parallels between the current environment and the speculative frenzy surrounding Internet stocks at the turn of the century are often dismissed, the bank’s analysis shows that the circumstances “are much more similar than one might think.”
“The takeaway is that highly concentrated markets present a clear and present risk to equity markets in 2024… Just as a very limited number of stocks have been responsible for the majority of MSCI’s gains USA, falls in the top 10 could drag down the stock markets with them.”
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