Why Now is the Time to Get More Bullish on Tech Stocks, Says Citi

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A bullish start to the week is fading as tech stocks poised to dominate the market to the south. It’s like a report does the trick that some Democratic lawmakers might be pushing for an effective dissolution of big tech companies.

“Political pressure is growing – lawmakers are sniffing votes to tackle big tech,” says Neil Wilson, chief market strategist for Markets.com. In other words, if Democrats win the White House and Senate in November, that push could turn into real laws.

Now is not the time to ditch tech stocks, says our call of the day, Citigroup strategists led by Robert Buckland. He rejected the bank’s sector recommendation on overweighted (bullish) technology stocks.

“Sure, valuations look expensive, but the sector is likely to outperform if downgrades to EPS (earnings per share) pick up elsewhere,” Buckland and the team said. This positive view on tech stocks means they also remain bullish on US stocks.

Citi believes cyclical stocks – tied to the fortunes of the economy – are the most vulnerable to declines in EPS, which they see pick up again in the months. Strategists believe consensus estimates for BPA are too high and that a second wave of COVID-19 infections could likely disrupt economic recovery.

“In addition, IT [information technology] is one of the main beneficiaries of lower real rates, ”Buckland said. Real rates refer to the interest that an investor or saver earns after adjusting for inflation. The higher load on tech stocks reflected a “steady decline” in real returns, he said.

In a separate note, Buckland noted that tech stocks outperformed in 2019 when the Federal Reserve cut interest rates and real yields fell, and in March, stocks and growth expectations fell and these yields continued to decline. This outperformance continued as quantitative easing dampened nominal yields – the interest an investor can expect to get from a bond.

What could finally burst the tech bubble, Buckland said, is if central banks lower that QE up to nominal and then real yields.

Analysts are also bullish on consumer staples, which they see as the best defense against rising inflation.

Lily: Wall Street sees Biden win accelerating U.S. switch to clean energy

The steps

DJIA actions,
+ 0.66%

+ 0.74%

+ 0.88%
are trading in a mixed way at first. SXXP European equities,
+ 0.08%
also rocked the first losses, and Asian markets had a largely positive session.

Lily: Here’s what’s really rocking the stock market right now

The buzz

Federal Reserve Chairman Jerome Powell is scheduled to deliver a speech on the economic outlook to the National Association for Business Economics at 10:40 a.m. EST. The trade balance was the third highest on record for August. JOLTS jobs for August came slightly better than expected.

President Donald Trump is back to the White House to perform COVID-19 treatment. His tweet saying “Don’t be afraid of COVID” sparked some outrage on Twitter
and scientists said people should Be very scared of the pandemic.

The White House has blocked updated guidelines from the Food and Drug Administration for COVID-19 vaccines, this likely would have prevented any release before the election. A new poll finds that only half of Americans would try a COVID-19 vaccine anyway.

As much of the world languishes in COVID-19 problems, the Chinese holidays have seen 80% return trip from where he was in 2019.

Don’t miss the Barron Healthcare Roundtable. Influential healthcare investors examine how COVID-19 has accelerated healthcare innovation and created new opportunities for investors. Register now here.


Here’s one for the COVID-19 “herd immunity” camp – those who believe countries with higher cases may be less vulnerable to large epidemics. Thomas Lee, founder of Fundstrat Global Advisors, shares this graph which shows how much America’s cases outstrip Europe’s right now.

Random readings

An iconic Central Park restaurant in New York closes its doors.

Japan pulls the plug very competitive mascot competition.

124 year old snowball fight always hits the spot.

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About Joseph Hedrick

Joseph Hedrick

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