Growth stocks in particular have fallen so far this year due to fears that inflation will slow the economy.
The Nasdaq is now 8% below the recent high, putting it at risk of falling into a correction, defined as 10% lower than the recent peak. The Dow and S&P 500 are each about 3% below their peak levels.
“If the first week of the year is any indication of what to expect in the coming months, investors will need to be nimble by 2022, and be aware of any major exposure they may have to growth stocks,” said Solita Marcelli, chief investment officer. officer for America at UBS Global Wealth Management, in a report Monday.
It is worth noting that two important value sectors, financial stocks and oil companies, are flourishing.
The yield on the US 10-year government bond rose to its highest level since January 2020, briefly topping the 1.8% level.
“Technology stocks have led the market for most of the past two years,” analysts at the Morgan Stanley Wealth Management Global Investment Committee said in a report on Monday. They noted that lower interest rates and the trend of working from home during the pandemic helped increase technology.
But the prospect of higher prices will be a problem for technology and other growth stocks going forward.
“Global policy tightening has offset Covid’s estimated burden on economic growth, and technology has begun to underperform,” Morgan Stanley analysts wrote, adding that now is a time when investors should try to actively choose stocks instead of passively relying on the big ones. the indices dominated by technology leaders.
UBS ‘Marcelli also noted that “valuations for growth companies should be compressed faster in relation to value shares” when the Fed raises interest rates.
“And that’s exactly what’s happened in the first week of the year,” she said, adding that “more speculative, very fast-growing, unprofitable technology companies have fallen even more” than the top technology on Nasdaq.