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The tech-heavy Nasdaq Composite has jumped 21% this year, more
than doubling the S&P 500's 9% rise, boosted by
stronger-than-expected earnings and cost-cutting measures from
major companies, along with expectations that the U.S. Federal
Reserve's hiking cycle is nearing an end.
Longer term, other sectors are likely to offer better returns at
more attractive valuations, said Abigail Yoder, U.S. equity
strategist at J.P. Morgan Private Bank.
"The tendency is that ... the sector that leads in one cycle
doesn't tend to lead in the following cycle," Yoder told the
Reuters Global Markets Forum.
The Nasdaq's current performance is a significant turnaround
from 2022's 33% drop, its worst year since the 2008 financial
crisis, but the risks posed by higher interest rates and a
potential U.S. economic slowdown have not faded.
"We are staying away from the more interest rate-sensitive
sectors such as tech," said Jonathan Mondillo, head of North
American fixed income at abrdn.
Anticipating an economic slowdown in the second half, more
cautious and selective positioning across fixed income
portfolios is a better bet, said Jonathan Duensing, head of U.S.
fixed income at Amundi.
"We've always felt that the tech sector in general is one where
you need to be very selective," Duensing said.
Abrdn's base case is a likely recession in the fourth quarter of
2023. Based on that, Mondillo prefers credit in more defensive
sectors, including healthcare and consumer staples, over
technology.
Similarly, Yoder sees healthcare as an attractive defensive
option in the face of recession, with mid-cap stocks likely to
outperform their larger counterparts.
"Longer term, we prefer actually mid-caps, which tend to be
higher quality in nature, and tend to exhibit a really good
up/down capture over time," she said.
(Reporting by Lisa Pauline Mattackal in Bengaluru and Divya
Chowdhury; Editing by Marguerita Choy)
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