Cameron Dawson, the Chief Investment Officer at New Edge Wealth, shared valuable insights on investor behavior and the bond market on Benzinga’s PreMarket Prep on Friday.
Dawson commented that the actions of the Federal Reserve were significantly influencing the bond market. She pointed out that ever since the tightening cycle began, the market had tried several times to price in the Fed’s pivot, with adjustments made according to changing economic data.
She particularly emphasized the importance of the PCE data, which was hotter than expected, suggesting that the market could expect a June rate hike, which marked a departure from earlier rate cut expectations.
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Dawson also talked about the trend of shifting equity investment from small-cap stocks to large tech companies, signaling a late-cycle market scenario, where investors are increasingly seeking growth in large-cap sectors.
Despite the strong momentum in tech names, the AI story and robust market trends, Dawson warned that stretched valuations might face a reality check in the face of economic weakness- a situation that isn’t evident yet but could materialize.
In 2023, the typical inverse correlation between real interest rates and valuations for growth and tech stocks broke down, which further complicated the investment landscape.
Tech stocks have seen significant valuation multiple expansions with high performers such as Nvidia Corporation (NVDA) seeing its valuation decrease from 65 times to 50 times due to revised earnings, indicating potential for earnings acceleration but also inherent risks with real interest rates near their highs.
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