BlackRock strategist suggests to book profit in tech stocks as Fed pivot looks uncertain

Top BlackRock strategist Gargi Chaudhuri advises investors to book profits in US-listed technology stocks to avoid portfolio erosion in the near term.

The tech sector is an “early sector winner of 2023” in hopes that the cooling inflation might prompt the Federal Reserve to pivot soon. However, in a note to clients, Chaudhuri, the Head of BlackRock-owned iShares Investment Strategy Americas, expressed that the possibility of lower interest rates in the near term is very less.

“[We] caution against chasing the rebound in equity prices, particularly in growth-style equities and sectors like technology,” Chaudhuri said.

Inflation in the US has been cooling off consistently and consumer behaviour also seems to be holding up well. On the other hand, prima facie, the US labour market shows remarkable strength, despite the Fed’s best efforts to kneecap the market. These aspects have led to a strong rebound in growth stocks such as technology stocks this year.

The Fed is more likely to pause at some point this year, instead of making a U-turn on its policy, said Chaudhuri. A pause will give the economy time to adjust to the policy and reflect desirable effects, and help the central bank evaluate the impact of the monetary decisions.

This means that the interest rates are expected to remain high this year, if not higher. As soon as the market factors in this possibility, technology stocks are will see a pull-back once again.

“The tech sector, with its high growth rates, is particularly sensitive to rates and so we expect these recent gains to be transitory,” noted Chaudhuri.