The trade in US large-cap growth stocks looks problematic due to crowded positioning and lofty valuations, according to RBC Capital Markets strategist Lori Calvasina.
(Bloomberg) — The trade in US large-cap growth stocks looks problematic due to crowded positioning and lofty valuations, according to RBC Capital Markets strategist Lori Calvasina.
While poised for the biggest monthly decline so far this year, the Nasdaq 100 is still up 37% in 2023, buoyed by optimism about artificial intelligence developments and hopes that interest rates would peak soon. Growth valuations remain well above their long-term average, Calvasina wrote in a research note.
“The over-valuation and crowding problems in Growth need to be resolved and will require some patience,” the strategist wrote. She cited data showing that asset manager positioning in Nasdaq 100 futures suggest the large cap growth trade is over-owned.
Meanwhile, growth stocks’ dominance on the earnings revisions front is fading while flows to funds focused on this group of equities have turned negative, she wrote.
Still, the strategist is overweight on technology as her team continues to see growth stocks as appealing from a longer-term fundamental perspective.
Calvasina lifted her S&P 500 Index year-end price target to 4,250 in May citing a recovery in earnings sentiment and labor market resilience that underpinned hopes the US economy may avert a recession. The index closed around 4,406 on Friday.
Her target suggests about 3.5% downside and she remains concerned that the pullback in US equities hasn’t fully played out yet. That said, the strategist said she’s more neutral than bearish on stocks from here.
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