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Tech stocks settle while banks heat up in 2022 rotation

(Bloomberg) — Technology stocks are out of favor, while previously abandoned bank stocks are popular again, as a steady jump in bond yields is turning markets upside down this year.

The ongoing rout in tech stocks — an unsuspecting pick for more than a decade — seems more than a short-term pullback: Bank of America Corp’s January global fund manager survey showed net allocation to the sector month- fell 20% month-on-month to 1%, the lowest since 2008. At the same time, overweight positions on bank shares increased to 41% among BofA’s clients, closing a record set in October 2017.

“Central bank tightness remains the #1 risk to markets in 2022,” strategists led by Michael Hartnett wrote in the survey. That’s bad news for expensive technology stocks, which are based on expectations for future growth, and good news for bank stocks, which have suffered the most over the past decade amid ultra-low or negative yields.

The stampede out of tech continued on Tuesday, with the Nasdaq 100 down 2% while yields on US 10-year Treasury notes hit a two-year high of 1.85%. The tech-heavy Nasdaq is now down 6.2% this year, while the KBW Bank index of US lenders has jumped 10%.

The BofA survey showing the new popularity of banks was conducted from January 7 to January 13 and understood the responses of 329 fund managers with $1.1 trillion in assets under management.

Read: Inflation Is No Fear For Equity Bulls, Shows BofA Survey

A separate Deutsche Bank AG survey published today showed that a majority of over 500 respondents believe US tech stocks are in a bubble. In a survey of market watchers last week, 49% agreed the sector was in bubble territory, while 39% disagreed and another 12% said they didn’t.

Still, according to Goldman Sachs Group Inc., not all tech stocks are the same. Market strategist Peter Oppenheimer is distinguishing between “defensive, strong balance sheet and cash-generating technology on the one hand and unprofitable very long-term technology on the other.” Wrote in a note today. “Very long-term unprofitable companies had arguably entered ‘bubble’ territory and have now adjusted most aggressively.”

From here, the direction of travel in the markets may partly depend on the earnings season that started last week. US reports, which this week include Netflix Inc., Bank of America and Goldman Sachs Group Inc., “could help move the scale in a positive or negative direction,” according to Russ Mold, investment director at AJ Bell.

–With assistance from Jan-Patrick Barnert and Nikos Chrysoloras.

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