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Morgan Stanley analysts told investors in a note on Monday that the final lows for the tech sector are still ahead, and for now, the firm prefers quality and defensive exposure.
“History suggests that Tech bottoms coincidently with the overall equity universe in bear markets, modestly underperforming into the trough and then materially outperforming post the low with a 100% positive return hit rate,” wrote the analysts.
As a result, they recommend “waiting for a durable trough” in the wider market before adding risk more aggressively to the sector.
“We see a 1H ’23 bear market low followed by a strong second half as equities broadly and the Tech sector look forward to better growth in ’24 and more accommodative monetary policy,” the analysts added.
They went on to point out that tech “faces tactical headwinds,” which reduces the likelihood it has already made its low ahead of the market, while they prefer a “higher quality and defensive stance” ahead of the low, followed by a “more pro-cyclical posture post the bottom.”
