Tech shares could have been the play for 2023, however for subsequent yr Financial institution of America Securities likes their debt. The financial institution referred to as investment-grade company bonds of expertise firms one among its prime 10 trades for 2024. “Personal tech stability sheets, however not tech EPS in ’24,” funding strategist Michael Hartnett wrote in a Nov. 19 word. The “Magnificent 7” tech shares — Apple , Alphabet , Amazon , Microsoft , Meta Platforms , Nvidia and Tesla — led the market greater this yr. Nvidia, for example, has skyrocketed a staggering 229% yr thus far, whereas Meta is up 190% thus far this yr. The tech-heavy Nasdaq has gained 39% yr thus far. Hartnett mentioned his name on the bonds of huge U.S. tech firms is a “nice, underappreciated contrarian hedge” in a yr that may seemingly see fee cuts from the Federal Reserve and both a “onerous touchdown” or “mushy touchdown” for the economic system. “How do you place for sudden occasions subsequent yr? A good hedge can be the bonds of firms which have a number of money,” he added. “The Magnificent 7 have a number of money.” That sudden occasion can be a tough touchdown, in response to Harnett. He says the consensus view is a mushy touchdown, or a gradual easing of inflation and the labor market in response to the Fed’s fee hikes. However Harnett expects there’s a larger threat than anticipated that the economic system will decelerate abruptly. If a tough touchdown is underpriced by traders, then this end result unquestionably might be destructive for equities, Harnett defined. With the largest positions in equities within the Magnificent 7, a tough touchdown would result in deleveraging of these shares, he added. It could even be optimistic for bonds. “You’ll get some rotation into top quality company bonds — and there may be nothing extra top quality within the company bond market than large-cap U.S. tech,” Hartnett mentioned. General, he expects cash to circulation into bonds subsequent yr. Shopping for investment-grade tech company bonds is only one aspect of the agency’s barbell technique within the asset class, he mentioned. “You definitely need publicity to what we might name the diamonds within the tough — the most effective home within the worst neighborhood, like banks,” Hartnett mentioned. — CNBC’s Michael Bloom contributed reporting.
