A respected RBC Capital strategist is defying the apparent meltdown in the technology sector and has raised his outlook.
RBC Capital strategist Jonathan Golub raised his price target for the S&P 500, citing improving profit growth and "reasonable valuations," CNBC reported.
The firm's new market forecast is 2,600, representing 7 percent upside from Friday's close.
The five biggest technology stocks lost nearly $100 billion in market value Friday, which caused the Nasdaq composite to post its worst week of the year. Apple and other technology stocks dropped again Monday, with the iPhone maker shares down as much as 7 percent in two days.
"We remain constructive on equities given the recent pickup in global activity, stronger EPS, and reasonable valuations," Golub wrote in a note to clients Monday.
"Equities would do quite well in the near term, led by financials as well as the most cyclical groups such as materials, industrials, and energy. Small-cap, value, and more globally oriented names would also do quite well. By contrast, low-vol and the bond proxy sectors would come under pressure," he wrote.
To be sure, a technology sector rout extended to its second trading day on Monday, with the Nasdaq Composite on track for its biggest two-day loss since September. The tech selling dragged down all three major indexes, causing concerns of wider bearishness in equities, Reuters reported.
"We're having a hard time deciding whether it's really a tech-specific sell-off or if this is a valuation pullback, so we're just holding pat right now," said Scott Goginsky, a co-portfolio manager of the Biondo Growth Fund.
However, investors took comfort that rather than totally abandoning equities, some were rotating into value sectors of the market. Losses were contained by a continuing rebound in energy and bank stocks.
"The overall equity market health is reasonably good because people are rotating - they are not frantically getting out of stocks," said Michael Purves, chief global strategist at Weeden & Co.
Up nearly 14 percent since President Donald Trump's inauguration in January, the technology sector of the S&P 500 had ballooned to its most expensive since early 2008 in terms of price to earnings expectations.
Tech took over the market leadership from financials and other sectors that outperformed after the Nov. 8 presidential election on hopes that Trump's agenda of deregulation and tax cuts would benefit the sector.
The five largest U.S. companies by market capitalization, Apple, Alphabet, Microsoft, Amazon and Facebook added more than $600 billion in market cap in 2017 before the sell-off started, making some analysts wary of sector over-extension.
The Technology Select Sector SPDR exchange-traded fund was down 1.1 percent Monday after having fallen as much as 2.2 percent - on track to post its largest two-day percentage decline in nearly a year.
The decline was led by Apple, stung by a broker downgrade for a second straight week on Monday.
The tech sell-off "is a reminder that markets that have full valuations are prone to quick reversals," said Dan Ivascyn, group chief investment officer at Pacific Investment Management Co., which oversees more than $1.5 trillion in assets.
(Newsmax wires services contributed to this report).
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