Citi analyserer virkningen af de seneste kursfald på high-tech aktier og mener, at investorerne må investere i en bredere gruppe af virksomheder og sektorer, både i og uden for USA, f.eks. i finans, sundhed og industri. Det er umuligt at pege på toppen og bunden i denne udvikling, men investorerne skal gøre sig klart, at når “fårene skilles fra bukkene,” vil det ske meget hurtigt.
Assessing the Pullback in the Technology Sector
Market reaction
- The technology sector is seeing some pressure after a rally that has surpassed all expectations, especially during a pandemic. The Nasdaq 100 fell 3.1% (in the week ending September 4) leading into US Labor Day holidays, though the index remains up 33.1% YTD.
- Cyclical sectors, such as energy, financials and real estate outperformed. And all of this occurred during a week when the employment report was positive.
- The market pullback may be associated with some profit taking behaviors after a relentless rally for almost three months. Citi analysts believe this is more likely a correction rather than the start of a broader downturn, as the cyclical recovery remains intact.
The drivers
Drivers of the post COVID-19 equity market are likely to include a wider group of sectors both in and outside the US.
Citi analysts find value exists in companies with lower forwarding-looking valuations and higher-than-average historic earnings-per-share (EPS) growth.
These include companies in the financial, healthcare and industrials sectors globally. Among non-US markets, Citi analysts also prefer Emerging Markets such as Asia and Latin America.
- Extreme valuation differentials exist between COVID-19 defensives and COVID-19 cyclicals, or between US and non-US equities.
- Picking market bottoms or tops are impossible and valuation extremes may not resolve tomorrow or next month, but when they do so, they tend to move quickly and decisively.
- Citi analysts thus believe that diversification in global portfolios matters.
Further volatility can be expected ahead
- Having been unable to pass any additional stimulus measures following the expiration of federal unemployment benefits on July 31, Congress is currently engaged in negotiations to pass its annual budget that expires end-September.
- Meanwhile, it remains an open question whether COVID-19 cases can stay under control throughout much of the northern hemisphere as certain jurisdictions attempt to open schools amid an approaching flu season. Even with treatments on the horizon, economies continue to adapt to COVID-19 reality. This means high levels of gross firing and hiring across industries, as well as continued substitution of goods from services.
The future value of diversification is rising
- US equity valuations are at a historic high relative to others and have been for a significant time. As the world finds a true solution to COVID-19, this could provide a catalyst for performance in other sectors, away from tech-centered, interest-rate driven equity performance.
- Citi analysts remain optimistic regarding the prospects for cyclical assets looking out into a new economic cycle in 2021 and beyond. The relative underperformance of “defensives” in the latest market selloff is just the latest sign that COVID-19 winners are trading richly versus those sectors that remain depressed along with the broader economy.
- The potential for positive results from one of the late-stage COVID-19 vaccine trials could fuel a rise in cyclical shares in the months ahead.
- Nevertheless, technology spending is not expected to decline, but its rate of growth could slow.
- Unlike the tech bubble in the early 2000s, this is unlikely to be a period when tech firms could see losses and many companies offering “growth at a reasonable price” can still be found in the tech sector. However, investors could avoid over-concentration of technology holdings in portfolios.