Tech Stocks: Head Fake or Value Shift?

Jeremy Siegel

April 22, 2024

Jeremy J. Siegel, WisdomTree’s Senior Investment Strategy Advisor, is the Russell E. Palmer Professor Emeritus of Finance at The Wharton School of the University of Pennsylvania. Professor Siegel has written and lectured extensively about the economy and financial markets and is a regular contributor to the financial news media. In 1994, he received the highest teaching rating in a ranking of business school professors conducted by BusinessWeek magazine. His book, Stocks for the Long Run, was named by The Washington Post as one of the 10 best investment books of all time. His latest book, The Future for Investors, is a bestseller.

The market is experiencing a healthy pullback as rate cut expectations are pushed back. We’re on the cusp of the quiet period before the May 1st meeting, and all eyes were on Jay Powell’s latest remarks. Despite a seemingly hawkish tone, he emphasized the Federal Reserve’s (Fed’s) dual mandate and signaled a readiness to adjust rates if the labor market weakens, as long as inflation doesn’t worsen. This pragmatic approach is encouraging.

Fed funds futures suggest diminished rate hike expectations, hovering around a single cut this year. I believe we will get more than what’s currently priced in. The Personal Consumption Expenditure (PCE) Price Index deflator is on the horizon, and I anticipate it will not be high. We’re inching closer to the Fed’s target for inflation, and I expect a dip in inflation to a three-year low on the core PCE index this week.

The narrative on the Consumer Price Index (CPI) should also improve, thanks to easing shelter costs and insurance premiums. With the Fed’s long-term neutral rate indicated at 2.6%, and current rates more than double that, there’s ample room for cuts.

The real economic data showed retail sales as very strong, dispelling any notions of a slowdown which prompted upward gross domestic product (GDP) forecast revisions. Housing starts presented a rare dip in an otherwise steady data stream, including jobless claims maintaining a stable trend. Manufacturing reports hint at a resurgence, also suggesting underlying economic strength.

Geopolitical developments brought some relief, with signs of de-escalation in Middle Eastern tensions and a consequent dip in oil prices.

This week, we look to the PCE deflator, durable goods orders, and the first estimate of Q1 GDP, which I expect to be in the high twos or perhaps over three as a result of the retail sales data. Additionally, an uptick in bank deposits may be reflected in the M2 money supply, data that I am monitoring closely.

On Friday, tech stocks and the Magnificent Seven suffered a severe downturn. The Russell 1000 Value Index rose relative to the Russell 1000 Growth by over 2.5%, the largest one-day change in three and a half years. Does this signal a shift to value, or just a “head fake” as has occurred so often in the past? It’s too early to know. Despite the tech downturn, value has still greatly underperformed growth since the COVID-19 pandemic. Notwithstanding, I regard the resulting weakness as a healthy pullback, and expect the market to move to new highs.

But my short-term view, the near-term inflation outlook appears to be under control, with a trend towards moderation and the recent pullback from the high’s leading to a healthy correction for the market.

Past performance is not indicative of future results. You cannot invest in an index.

Professor Jeremy Siegel is a Senior Investment Strategy Advisor to WisdomTree Investments, Inc. and WisdomTree Asset Management, Inc. This material contains the current research and opinions of Professor Siegel, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such. The user of this information assumes the entire risk of any use made of the information provided herein. Unless expressly stated otherwise the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.

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