Thursday, 22 June 2023

Tech stocks' AI-fueled surge won't end unless the Fed crushes the economy Wells Fargo strategist says

Nasdaq stock exchange
Tech stocks have soared in 2023 – and the rally will only end if the Federal Reserve "cracks" the economy, according to Wells Fargo strategist Chris Harvey.
  • Tech stocks' huge rally won't end until the economy "breaks", according to Wells Fargo's Chris Harvey.
  • Only higher interest rates can temper the AI-fueled boom, the strategist told Bloomberg.
  • "Tech is not going to roll over… until you crack the economy," Harvey said.

Only the Federal Reserve can put an end to tech stocks' massive, AI-fueled surge, according to Wells Fargo's top equity strategist.

Further interest-rate increases by the central bank could crack the economy and put an end to the sector's huge start-of-2023 rally, Chris Harvey said Wednesday.

"Tech is not going to roll over, the major theme isn't going to roll over until you crack the economy – that's what happened back in 1999, that's likely what's going to happen now," he told Bloomberg, referring to when Fed tightening put an end to the late-1990s dot-com boom.

"I don't think you can crack the economy until the Fed gets more aggressive," Harvey added.

Between March 2022 and May 2023, the central bank raised interest rates from near-zero to over 5% in a bid to tame soaring prices.

But it temporarily "paused" its tightening campaign earlier this month amid signs that inflation has started to rapidly cool from the four-decade highs it hit last year.

While stocks initially plummeted as investors adjusted to higher rates, both the benchmark S&P 500 and tech-heavy Nasdaq Composite have enjoyed spectacular rebounds in 2023, powered higher by massive gains from AI-related stocks like Nvidia and Microsoft.

And only even higher interest rates – which would make borrowing cash more expensive and likely weigh on both spending levels and drag the economy closer to a recession – can end that rally now, Harvey said.

"We'll have some wiggles, I think we'll have a pullback in the market, we'll have a pullback in big tech, but that overall theme is still in place," he told Bloomberg.

"Not until the economy breaks do we really think about that trend breaking," Harvey added.

Read more: These 5 charts capture a rollercoaster 15 months for stocks, bonds, and crypto as the Fed pauses its tightening campaign

Read the original article on Business Insider


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