A surge in Big Tech valuation could ultimately prove to be a dangerous development for the wider stock market, Bank of America analysts wrote in today’s client note.
Investors poured $52.3 billion into cash in the week to Wednesday while $7.4B went into bonds, the 11th consecutive week of inflows.
Region-wise, Europe and Japan have once again witnessed equity outflows while Chine attracted the largest equity inflow in 15 months ($6.1B).
Analysts also highlighted several indicators that are pointing towards recession in the near term e.g. no rally in oil despite big OPEC supply cuts, low ISM index, house prices falling globally, etc.
“We stay bearish as economic ambiguity of 2023 set to end with crack in labor market & EPS recession,” they said in a note.
Hence, the analysts told the broker’s clients to sell the S&P 500 above 4200 “as stocks pricing in just -4% EPS decline and 210bps of rate cuts peak-to-trough.”
“Dramatic fall in wage inflation key to “soft landing” upside, but we think risks of hard landing for EPS/no landing for interest rates remain high,” analysts concluded.
Similarly, Wells Fargo analysts argue that Thursday’s rally in stocks, fueled by strong Big Tech earnings reports, “may be part of the final pull-up.”
“We continue to expect a 10% correction over the coming months, with macro concerns weighing on sentiment,” they wrote in today’s client note.
S&P 500 closed at $4,135.35 yesterday, up 7.7% year-to-date.