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Tech stocks have more room to run, analysts at Wedbush wrote in a note Tuesday.
Justin Tallis/AFP via Getty Images
Investors would have reason to be cautious on tech stocks: The sector already has seen big gains this year and there’s a chance interest rates could still go higher. Don’t fret, said analysts at Wedbush, because the artificial-intelligence-led rally can continue.
The
S&P 500
has gained 16% this year but the tech-heavy
Nasdaq
has risen an impressive 31%—symptomatic of the investor frenzy over AI that has helped the sector outperform. The question of whether or not gains can continue is underscored by the uncertain outlook for the Federal Reserve, which has cranked interest rates to a generational peak over the past 18 months to tame decades-high inflation.
While the Fed widely is expected to hold interest rates steady when it meets this week, expectations for November remain in flux with another rate hike on the table, to say nothing of shifting bets on when borrowing costs eventually will be lowered.
The problem for tech investors is what Fed policy has done to bond yields, with the yield on the benchmark 10-year U.S. Treasury remaining well above 4%, the highest levels since the days of the 2008-2009 financial crisis. Higher returns on risk-free government debt give investors fewer incentives to pile into riskier bets like tech stocks, weighing on shares.
Nevertheless, analysts led by Dan Ives at Wedbush—famously a tech bull—continued to sound their horn.
“Can tech go higher with a stubborn 4%+ 10-year level?” the team at Wedbush wrote in a note…
..
