Tech stocks have hit record highs in 2023, but their gains are threatened by a recession, Bank of America (BofA) currency strategists said. An economic downturn will slow the rally considerably, they noted.
Since the beginning of this year, the Nasdaq index has risen by 18% as tech stocks surged.
Michael Hartnett, an analyst at BofA, said the recession is possible in the near future, which will "crack credit and tech" similar to the crash of 2008 in the US.
Hartnett also noted that the Federal Reserve, which is aiming to bring inflation down to the target level of 2%, is unlikely to stop hiking the interest rate in the near future.
According to the Bank of America, investors poured $3.8 billion into tech stocks in the week through May 10, the highest inflow since December 2021. Impressive earnings of Big Tech companies in 2023, as well as the hype surrounding artificial intelligence (AI) products such as ChatGPT, are among the likely drivers of the massive investment into the tech sector.
Tech stocks were also supported by investor expectations of the Fed halting its rate hike cycle. However, these expectations did not come true.
Despite the impressive growth of Big Tech, experts have advised to keep in mind the gloomy prospects of the US economy, which has faced turmoil in the banking sector. The US economy has been negatively affected by the recent collapse of several regional banks, such as the Silicon Valley Bank and First Republic Bank.
About 90% of traders believe that the US central bank will not increase interest rates in June. Keeping the Fed funds rate unchanged would boost stocks of tech companies. This would allow Big Tech companies to take out fixed-rate loans, boosting their future cash flows.