Technology stocks are in trouble, with the buzz around artificial intelligence set to be overshadowed by the effects of higher-for-longer interest rates, according to Bank of America Corp. strategists.
We see second-half “trouble rather than an era of new AI rules,” strategists led by Michael Hartnett wrote in a note on Friday. They highlighted the correlation between central bank liquidity and tech stocks and indicated that it is incongruous the Nasdaq has been testing record highs while central bank balance sheets have fallen by around $3 trillion during the current rate-hiking cycle.
The BofA strategists’ view comes after the Nasdaq 100 tumbled on Thursday as bond yields rose amid remarks from a slew of Federal Reserve officials. Even a blowout sales forecast from AI bellwether Nvidia Corp. wasn’t enough to stem the drop.
Hartnett was correct in his prediction for a stock-market slump last year and has maintained a bearish outlook in 2023 even as equities rallied in the first half.
The tech-heavy Nasdaq has slumped in August, and is set for its worst month since December, but is still up 35% this year. The index had a record first half amid a frenzy over the potential for AI to bolster profits in the sector, while the impact of monetary policy on high-growth companies has started to become a more common theme for investors.
