The Chief Investment Officer (CIO) of a Swiss private bank predicts a new phase in stock markets that involves an expansion of last year's bull market, particularly as prominent U.S. tech stocks face increased pressure.
On CNBC's "Squawk Box Europe," Charles-Henry Monchau, CIO of Bank Syz, said that last week marked the beginning of a "healthy" rotation in the market. Monchau anticipates the U.S. to undergo a "technical recession without going through a hard landing" in the first half of this year, followed by an eventual recovery.
The "magnificent seven" stocks – Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla – which witnessed a significant surge in 2023, now account for roughly 30 percent of the S&P 500 index's total market capitalization.
However, the beginning of 2024 proved challenging as the three major stock indexes snapped a nine-week streak of gains, mainly due to the underperformance of mega-cap tech stocks, notably Apple. On the last week of 2023, CNBC reported that Apple's shares had surged by 49 percent for the year, surpassing the Nasdaq's 44 percent increase. But it declined 3.1 percent Tuesday morning (January 2) after Barclays had downgraded the stock from equal weight to underweight.
Following this dip, the S&P 500 (^GSPC) increased by approximately 1.4 percent on Monday, while the Nasdaq (^IXIC) surged by 2.2 percent. Meanwhile, the Dow rose about 0.6 percent. Monday marked the most substantial single-day gains for the Nasdaq and S&P 500 since November 14th.
Market strategists note that a stock pullback following a strong 2023 isn't uncommon, but the absence of a Santa Claus Rally and a negative start to the year is historically concerning, as per Carson Research's Ryan Detrick.
When both metrics are negative, the benchmark index averages just a three percent rise for the year. Notably, the S&P 500's narrow decline to the start of 2024 is unprecedented.
“What we saw last week was very interesting in the sense that we can indeed have some of the winners of last year being under pressure, whereas the market still looks like a bull market because you have other parts of the market that are coming back — and here I’m talking about the laggards of 2023 like financials, for instance, energy or even healthcare,” he said, as quoted by CNBC.
According to Monchau, part of the recent market weakness could be attributed to a reduction in the extreme "euphoria" that had fueled the stock market surge in the last two months of the previous year.
Similar opinion
Monchau emphasized the importance of different market sections joining the bull market, considering it a positive change. He noted the importance of broader participation, which was absent last year but is now becoming a favorable trend.
Scott Wren, senior global market strategist at Wells Fargo, echoed similar sentiments. In a recent research note, Wren emphasized that the investment focus of the Wall Street firm in 2023 centered around robust large-cap U.S. equities boasting dependable earnings streams, robust cash flows and sturdy balance sheets.
“Pegging the precise timing of an economic slowdown is always difficult, but the economy is clearly slowing," Wren said. "We expect, first, a bumpy stock market ride in the midst of slowing economic growth followed by a recovery that takes hold in the second half of the year and into 2025."
He anticipates a transition towards cyclical asset classes and sectors that are poised to excel in an economic recovery later in the year.
As the economy slows later on, Wren recommended investors redistribute funds from high-valued sectors like Information Technology, Consumer Discretionary and Communications Services towards favored sectors such as Industrials, Materials and Health Care.