Wells Fargo Securities’s Chris Harvey calls Big Tech’s recent outperformance a “head fake”.
In a recent announcement to investors, he wrote that economically sensitive groups will overtake growth as the leading market driver and that the heavy rotation could take place as early as this month. Hence, he urges investors who are overweight to fall in the market for performance.
“Take some profits,” the company’s head of equity strategy told CNBC’s Trading Nation on Friday. “It’s not that we hate technology. It’s just some of the tech companies that are high growth and high risk. [and] high multiple. “
Wall Street has now had a positive month. Tech-heavy Nasdaq posted its sixth straight monthly gain. It gained more than 7% in April to close the month at 13,860.76. The index is 2.5% below its all-time high last Thursday.
Harvey attributes strength in growth and technology to benchmark 10-year treasury note return, which has fallen nearly 6% over the past month. It ended April at 1.62%.
However, Harvey anticipates that returns will break out. His firm predicts that the 10-year return will hit 2% next month.
“We’re starting a very aggressive cycle of GDP, a very aggressive recovery. When you have growth and abundant growth, you usually don’t want to pay a premium on technology,” he said. “We are there now.”
Harvey believes investors have not resigned themselves to the trouble inflation will create for big tech, growth stocks, and the market as a whole.
“We’re going to start thinking about things like higher taxes. When do we taper? What are the interest rates – assuming they go up,” said Harvey. “You can get a little more choppy.”
Harvey plans to use turbulence to his advantage. His strategy: target groups well positioned to benefit from inflation and a rapidly recovering economy.
“We want to add more cyclicality,” said Harvey. “We want to do that in finance. We want to do that in industry. We want to do that in consumer services – whether it’s hotels. Whether it’s restaurants.”
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