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Stock markets have entered a new phase that will see an extension of last year's bull market as major U.S. technology stocks come under pressure, according to the CIO of a Swiss private bank.
Charles-Henry Monchau, chief investment officer at Bank Syz, told CNBC's “Squawk Box Europe” on Monday that last week marked the start of a “healthy” rotation.
The so-called “Magnificent Seven” stocks – Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla – now account for around 30% of the S&P 500 index's total market capitalization after a remarkable rally in 2023.
But markets had a difficult start to 2024 as the U.S. benchmark index snapped a nine-week winning streak as mega-cap tech stocks, particularly Apple, underperformed.
Bank Syz's Monchau said he expects the U.S. to experience a “technical recession without a hard landing” in the first half of this year before a recovery begins.
“What we saw last week was very interesting in that we can actually have some of last year's winners under pressure while the market still looks like a bull market because there are other parts of the market that are coming back.” and here I am talking about the laggards of 2023, such as finance, energy or even healthcare,” he said.
Monchau suggested that some of last week's weakness could also be due to an easing of the excessive “euphoria” that fueled the stock market rally in the final two months of last year.
“Remember, we had a great end to 2023, the market maybe got a little rushed, now it's pulling back, and because of the big weights of these big stocks… they're obviously under pressure now, just like us.” We see some, shall we say, profit-taking on these long positions,” he said.
“But again, I think it's very healthy to see some other parts of the market participating in the bull market. That's what we want to see – an expansion of upward participation. That was clearly missing last year and now. “It’s starting to look like something that’s actually working.”
These views were somewhat echoed by Scott Wren, chief global market strategist at Wells Fargo. In a research note late last week, Wren emphasized that the Wall Street giant's investment focus in 2023 was on large-cap U.S. stocks with reliable earnings streams and cash flows and strong balance sheets.
However, he expects this to shift to more cyclical asset classes and sectors that are better positioned to drive an economic recovery later in the year.
“It is always difficult to pinpoint the exact timing of an economic slowdown, but the economy is clearly slowing and we expect an initial bump in equity markets amid slowing economic growth, followed by a recovery that takes hold in the second half of the year and into 2025,” Wren said.
“As the economy continues to slow, we encourage investors to shift funds from the highly valued information technology, consumer discretionary and communications services sectors into our currently cheaply valued industrials, materials and healthcare sectors.”