Tech sector becomes safe haven for investors amid U.S. banking crisis

Yahoo Finance Live’s Julie Hyman summarizes Tuesday’s ‘Morning Brief’ and breaks down how Apple and Microsoft stocks are leading the way for the tech sector.

Video transcript

BRAD SMITH: Well, for more on how the banking crisis is allowing the tech sector to open up and provide a haven for investors, we welcome in Chris Versace, who is Tematica Research Chief Investment Officer. Chris, great to see you.

CHRIS VERSACE: Great to see you, Brad. Great to see you, Julie.

BRAD SMITH: Absolutely. So let's dive into this a little bit more. Because it seems like, once again, tech is a reprieve for those who have been exiting some of the banking positions.

CHRIS VERSACE: I think that's right. I mean, you know, typically, when we look for a market to recover, tech is early, right? It's one of the leading sectors. But you have to remember, too, that folks are trying to understand that the second-half rebound that's been expected, is it tracking? And I think we'll learn a lot tonight after Micron reports.

Remember, back in December, they were the ones who kind of gave the warning shot, if you will, or a renewed warning shot, about the PC market, about the smartphone market, talking about data center demand, inventories. So I think folks are going to be really leaning into what they have to say after the close.

JULIE HYMAN: Just to take a step back for a minute and look at how everyone's been, sort of, positioning this year, trying to game out the Fed. We were just talking about how much argument there is right now about what the Fed is going to be doing next, right? How are you thinking about that? How are you framing that? Or you, sort of, going bottoms up and just focusing on individual companies and trying as much as you can--

CHRIS VERSACE: Yeah, yeah, yeah.

JULIE HYMAN: --to avoid the Fed debate?

CHRIS VERSACE: Well, you can't avoid the Fed debate because you-- and first off, you can't fight the Fed. We all know that, right? So the question to me is, you know, just to set it up-- 5.1% year-end Fed-funds rate. Powell said that last week. He said there are no rate cuts in the Fed's base case.

But the market's pricing in multiple rate cuts, so there's clearly an issue that has to be decided here. I think what makes it very hard is folks are trying to figure out this, you know, expected credit tightening-- 25 basis points, 50 basis points? And I don't think we're going to know until banks start reporting in a couple of weeks.

And even then, we may not get the full picture. So I think we're going to be very choppy for the next couple of weeks, to be very frank with you. But based on the data that I've seen, right, and data I'm sure you guys have seen, too, right, you look inside the core CPI report for February, right, month over month, three months in a row of moving higher. That's not what the Fed wants to see.

And then, at the same time, the February PPI report, you know, services still up at 6% year over year. That's a big number. So what I suspect will happen is that we're going to go through this, you know, cycle with banks, you know. And hopefully, today, we'll get a little more clarity on that. We'll get a sense as to what the credit tightening looks like.

But before too long, it's going to be back to the inflation data.

BRAD SMITH: So there's, in one camp, steady on the pathway ahead for the Fed, but then there's also what DoubleLine Capital's Jeffrey Gundlach told CNBC, saying that they need to respond very dramatically. How different is a dramatic response versus just steady as we go right now?

CHRIS VERSACE: I don't think that the-- so the Fed's role, remember, is always, like, a cheerleader to the economy, right? So I don't think that they're going to do anything overly dramatic. Think of what they've done over the last, you know, couple of weekends, right, to shore up the banking system, to make folks comfortable, right?

And again, we'll hear more testimony from Barr today to that effect. So I don't think that's going to happen. To me, the bigger move is, how many rate cuts does the market have to dial back that it's expecting? Not the Fed doing something dramatic.

JULIE HYMAN: Right. And that's, sort of, in line with what BlackRock has been saying, right?


JULIE HYMAN: That the market is getting a little ahead of itself. So let's circle back to what we talked about--


JULIE HYMAN: --at the beginning, which is positioning right now. Because, as I wrote about in today's Morning Brief, people have been piling into tech stocks as, sort of, an area of safety, which is a little bit counterintuitive maybe, or just an area that they want to get away from the banks. Is that a, sort of, delicate position for the market to be in?

CHRIS VERSACE: You know, the market's always forward looking, right? And there's some debate, is it three months, six months, nine months? So, you know, as I was saying before, there is this expected recovery in technology as demand picks up, as inventories in the channel, kind of, get worked down. And remember, the second half of the year tends to be seasonally stronger for tech anyway.

But, you know, I think we're all looking for those data points that say, oh, yes, yes, it is firming, it is on track. You know, at the same time, you know, there is the potential that we get some news that says, oh, things have worked down faster than we expected. You know, you could almost make it a little analogous to the retailers, where, you know, at the end of last year, bloated inventories.

And a number of them took it really on the chin. Look at their margins. But they really, really worked their inventories down. So if we start to hear that and the channel is clear, you might see people get even more excited about some tech companies.

BRAD SMITH: Is that, to say, that the worst of tech's issues are behind it right now? I mean, we're talking about an advertising market that we were talking about drying up on the digital side that impacts everything from social media companies to the ad duopolies that are out there. And some of them also, in Alphabet's case, they're in the consumer tech landscape that gets hit on consumer discretionary side as well.

CHRIS VERSACE: So that's actually a great point because it calls out the fact that tech is this big, amorphous thing. And there's really different areas of technology, right? There's everything from software to, as you were talking about, social media. Even in the chip space, right, what's the end market?

Are you in PCs? Or are you in smartphones? Are you in data center, right, or IoT or some other areas? And I think there are other-- there are pockets that are doing stronger than others, data center in particular, so you really have to be selective in this environment.