The Nasdaq’s downturn may just be starting.
Fundstrat Global Advisors’ Tom Lee says a major shift is happening in which tech stocks will greatly underperform other stocks.
He’s urging investors to double their stakes in epicenter businesses, which are those businesses that are stationed to profit as shutdowns end and the economy comes back online.
“A lot of these businesses were shut down, things like industrials, energy and the travel industries. They really cut costs,” the firm’s founder said to reporters this week. “We will be shocked by the leverage.”
In 2020, growth trades were among the big gainers. The Nasdaq gained 44%, while the Nasdaq 100, which tracks tech companies, increased by 48%.
“They’ve made a lot of profits for traders and investors. But they are very overbought trades,” Lee said. “They’re very expensive compared to the epicenter group.”
Plus, he stressed that rising interest will create more challenges.
“Growth stocks don’t perform as great,” he said. “You will want to own asset-heavy, cyclical and economically sensitive businesses. Which is what we call an epicenter trade.”
Around the time the FDA began approving vaccines last year, stocks linked to economic growth started bringing in more money. Lee says they are now going to take off.
“There’s an urgency for investors to have plenty of exposure to these stocks to capture the upside this year,” said Lee.
He stressed energy as a top play, since it directly profits from the recovery. The Energy Select Sector SPDR Fund, has increased 33% so far in 2021.
“The top part of the epicenter is the energy business,” he said.
Lee, who’s bullish on the economy as a whole, contends this new circumstance could hamper tech for years.
“It might be an entire generation,” Lee said. “We are two months into something that might last 10 to 20 years.”