US and EU equity markets show signs of stabilization after Thursday feast of bears. SPX futures touched 3440 level, which was the suspected point of the bounce up. Tech stocks faced additional pressure, in particular due to the fact that Goldman, following the BoFA, changed its recommendation for tech stocks from “overweight” to “neutral”:

What’s reason for tech stocks to fall out of favor of investors?

The bank analysts believe that the coming stage of business cycle (at least some part of it) will be associated with temporary rotation from growth into value stocks. Two key characteristics of this stage are rising rate economic growth and higher interest rates in the debt market (less demand in the fixed income market). If we analyze behavior of economic variables in episodes from the past when investors favored growth stocks (2008-2020, 1995-2000, etc.), there are some clear trends in them such as falling growth rates, slowdown in inflation, aggregate productivity, etc.:

Performance of growth stocks relative to value stocks

Therefore, if Goldman starts to favor value, it should also expect some revival of the global economy, fiscal stimulus in the United States after the elections and accompanying developments such as increased steepness of the yield curve, accelerated inflation, etc. Let’s see if the timing of this bet is correct.

However, this rotation won’t be permanent - in the long run, long-term structural factors should prevail - economic growth rates will continue to slow down, overall productivity will decline (continue to concentrate in certain industries), inflation will again be under pressure. All of this should favor growth stocks, including tech sectors.

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