In a Friday appearance on Benzinga’s PreMarket Prep, Cameron Dawson, chief investment officer at New Edge Wealth, provided valuable insights into the state of the bond market and the shifting investor behavior from small-cap stocks toward tech giants.
The bond market is being heavily swayed by the Federal Reserve’s actions, according to Dawson. She highlighted that the market tried pricing in the Fed’s pivot several times since the tightening cycle began, with adjustments due to changing economic data.
Particularly, she pointed to the hotter-than-expected Personal Consumption Expenditure (PCE) data as a key indicator that a June rate hike could be on the cards, marking a departure from earlier rate cut expectations.
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Dawson also touched on shifting trends in equity investment — notably the rotation from small-cap to large tech companies.
She suggested it signaled 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 the stretched valuations might face a reality check in the face of economic weakness, a situation that isn’t evident yet but could materialize.
She noted the breakdown of the typical inverse correlation between real interest rates and valuations for growth and tech stocks in 2023, which further complicates the investment landscape.
With real interest rates near their highs, tech stocks have seen significant valuation multiple expansions, with high performers such as Nvidia Corporation (NASDAQ:NVDA) seeing its valuation decrease from 65 times to 50 times due to revised earnings, indicating potential for earnings acceleration but also inherent risks.
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