U.S. stock-market direction is hanging on the performance of Big Tech ringleader, Microsoft Corp., which must hold on to new highs.
That’s according to Bank of America, strategists led by Michael Hartnett, who had this to say in a Friday note to clients: “The ‘Yul Brynner.’ of our self-proclaimed ‘Magnificent Seven’ is Microsoft.”
And if Microsoft
MSFT,
can’t maintain new highs, the “equity and credit narrative could flip from ‘buy-the-dip’ in H1 [first half of 2023] to ‘sell-the-rip’ in the second half of year,” said the strategists, who provided the below charrt:
Microsoft has struggled for new highs after reaching $359.49 per share on July 18, after it laid out aggressive pricing on its tools for artificial intelligence, a theme that has been a big driver of the stock market’s tech-led gains this year. Up 32% so far in 2023, Microsoft is off more than 5% in August so far.
The so-called Magnificent Seven stocks, named as such for helping drive a stock rally in the first half of the year, also include Meta
META,
which on Thursday followed Microsoft
MSFT,
Apple Inc.
AAPL,
and Nvidia Corp.
NVDA,
into correction territory, implying shares have lost at least 10% from their recent peaks. Also in the seven is Tesla Inc.
TSLA,
which is now in a bear market, down more than 20% from its recent high.
The overall stock rally has struggled in recent weeks as investors have fretted over the potential for U.S. interest rate increases and surging Treasury yields, as well as China worries, with property developer Evergrande filing for U.S. bankruptcy protection late Thursday.
Read: This is no longer a ‘buy-the-dip market,’ says this Goldman Sachs veteran
Hartnett and his team warned about more bad news out of China, including a “shocking” list of things going wrong there right now, such as eroding stock gains, youth unemployment and the country’s holdings of U.S. Treasurys which are at the lowest since June 2009. That’s in addition to risks around property developers and the fallout for shadow banking in the country.
“Risk of China ‘credit event’ already spooking global markets but we would expect China event quickly elicits big (international) policy response,” said the Bank of America strategists. Despised U.S. stocks, like U.S. real-estate investment trusts are “thus the best hedge should policy makers cause bond yields & Chinese renminbi to
both pull back from [the] precipice.”
Read: China Evergrande collapse shows need for $1 trillion Beijing rescue plan, says Clocktower strategist
And: China sets yuan fix at biggest gap to estimate on record
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