(Bloomberg) -- Traders returning from the U.S. holiday are facing a sea of red as a deeper slide in tech drags down stock futures across the board.
The latest lurch lower is being blamed on surging bond yields as investors prepare for the paring of Federal Reserve stimulus. Growth firms whose profit potential lies in the future are in the line of fire, with Nasdaq futures tumbling as much as 2% as tech stocks lead declines in Europe.
Billionaire investor Bill Ackman says the U.S. central bank is so far behind the curve it needs a 50-basis point hike in March alone. Even German bund yields are on the brink of turning positive for the first time since May 2019.
The question now is whether earnings season will once again provide the saving grace to justify pumped-up equity valuations.
Here are some industry views on the selloff.
More Downside
Christopher Harvey, head of equity strategy at Wells Fargo:
“Money chases performance, and now we are seeing the flip-side of this equation. Complicating matters is the lack of ‘natural' buyers for many of these high-fliers -- making liquidations relatively gappy. Performance numbers, a lack of outsized volume days, and expected net outflows imply more downside.
It continues to be a two-tiered market in 2022. Portfolio managers investing on a price-to-sales basis are in a bear market with a number of high fliers down well more than 20% since October. Portfolio managers invested in companies with actual GAAP EPS are wondering what the big fuss is.”
Downsizing Expectations
Louise Dudley, a portfolio manager at Federated Hermes:
“I think there's a little bit of realization that Q4 maybe is going to be the last quarter where we see some double digit growth and looking into 2022 things are normalizing a little bit more so people are revising that expectations on GDP also coming down, valuations getting tighter. There's still a little bit of catch-up to go I think on that.”
“Some of the earnings previews that we get from some of the banks, some of those names didn't hold up. Expectations were too high, despite their quite favorable outlook to a certain extent relative to some other sectors. It is a case that we do expect a little bit of normalization but not too much of an overall correction.”
No Stop
Peter Chatwell, head of multi-asset strategy at Mizuho International Plc, and colleagues:
“We expect to see U.S. real rates continuing to push higher, without a clear near-term catalyst to stop the upward move. Investors are now contemplating the need for the Fed to hike by 50bp in March rather than whether they'll hike at all.”
“We expect to see another bout of upward pressure on UST yields, as well as downward pressure on equities and decompression in U.S. credit markets.”
Greater Volatility
Melda Mergen, global head of equities at Columbia Threadneedle:
“Investors need to be selective about what they own. The highest growth stocks are likely to be subject to greater volatility as interest rates rise.”
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