Cooling Economy Will Crack Big Tech Rally Even More: BofA

The rally in the biggest U.S. technology stocks is at risk of fading further if the U.S. economy continues to cool, according to Bank of America Corp.’s Michael Hartnett.

The strategist — who is bullish on bonds for the second half of 2024 — has said signs of an economic slowdown would fuel a rotation into stocks that have lagged behind the pricey tech mega-caps this year.

In a note on Friday, Hartnett said recent data suggested the global economy was “ill,” and that “we are one bad payroll away” from big tech stocks losing their dominance.

The upward trajectory of technology stocks including Apple Inc., Amazon.com Inc., Alphabet Inc., Microsoft Corp., Nvidia Corp. and Meta Platforms Inc. has been derailed in the past two weeks as investors flocked into small caps on bets that the Federal Reserve could begin cutting rates soon.

About $2.6 trillion has been erased from the market capitalization of firms in the tech-heavy Nasdaq 100 Index since it hit a record on July 10, also fueled by worries that big investments in artificial intelligence may not pay off any time soon.

Still, BofA’s Hartnett said equity bulls were holding on to the belief that a correction was “healthy” as the market hadn’t fallen below critical levels.