Bubble Fears for U.S. Tech Stocks Surface in Deutsche Bank Poll

(Bloomberg) -- The tech-stock rout is taking the air out of what many investors already thought was a bubble. 

Forty-nine percent of market participants polled by Deutsche Bank AG answered “yes” when asked if there was a bubble in such shares, according to its January global market survey released Tuesday. Thirty-nine percent said “no” and 12% didn’t know. 

The high-growth stocks that benefitted most from historically low interest rates are now being hit hardest by expectations of tighter monetary policy from central banks worldwide. The Nasdaq Composite Index, which had more than doubled since March 2020, slid 1.6% Tuesday and is down almost 9% from its mid-November peak. 

Bank of America Corp.’s January global fund manager survey showed that net allocation to the technology sector fell 20% month-over-month to 1%, the lowest since 2008.

Yet correctly identifying a bubble in asset prices or timing its collapse has always been difficult. In a Deutsche Bank survey from March, U.S. technology stocks were regarded as one the most bubbly assets, though prices continued to plow ahead anyway. 

The recent drop, however, comes amid growing and widespread conviction that the Federal Reserve is poised to start raising interest rates and rolling back the unprecedentedly loose monetary policy that helped stocks soar during the pandemic.

“Higher interest rates are going to be here to stay and that has to factor into everyone’s decisions -- not just those that are borrowing capital but mostly in terms of valuations,” Julie Biel, portfolio manager and senior research analyst at Kayne Anderson Rudnick, said on Bloomberg TV. “So those super high-flying narrative-driven tech stocks are going to continue to take a beating.”

Seema Shah, chief strategist at Principal Global Investors, says technology stocks have been “collateral damage” from the recent spike in bond yields. Looking to the future, she sees the most pain persisting for tech companies without profits, saying those with strong balance sheets and pricing power will have further room to run. 

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