Tech stocks are expensive, underweight suggested, favor communication services and defensive stocks

From Morningstar: 2024-08-08 05:19:00

Nicolo Bragazza, Associate Portfolio Manager at Morningstar Investment Management, explains the three causes of the recent market sell-off: the Bank of Japan unexpectedly hiking rates, the Fed being more dovish than expected, and a disappointing job report. Tech stocks were hit hard due to unwinding carry trades and high valuations.

Bragazza discusses the tech and AI bubble, noting that while these companies generate revenues and earnings unlike past tech bubbles, their valuations are rich. He suggests preferring communication services over tech stocks for now due to attractive valuations and likes defensive stocks such as utilities.

UK equities were less affected by the sell-off due to strong exposure to healthcare and consumer staples sectors. Bragazza comments on the Federal Reserve possibly cutting rates in September and emphasizes the importance of focusing on long-term valuation-driven investments.

Finally, Bragazza advises investors to focus on the long term and consider if fundamentals have changed during market volatility. He believes market downturns could provide better entry points with improved valuations. This is Christopher Johnson reporting for Morningstar UK.



Read more at Morningstar: ‘We’re Underweight Tech Because Stocks Are Expensive’