Tech stocks' big rally isn't likely to fizzle out anytime soon, LPL Financial says

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Tech stocks' big rally isn't likely to fizzle out anytime soon, LPL Financial says
The tech-heavy Nasdaq Composite has jumped just under 15% year-to-date.Brendan McDermid/Reuters
  • Tech stocks are likely to enjoy further gains after starting 2023 on a tear, according to LPL Financial's top market strategist.
  • Cooling inflation and signs of a job-market slowdown should propel the tech sector higher, Jeffrey Buchbinder said.
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Tech stocks have started 2023 on a tear – and the rally is unlikely to peter out anytime soon thanks to cooling inflation and a weakening job market, according to LPL Financial.

The broker-dealer's chief equity strategist said Wednesday that he's expecting the sector's early-2023 rally to carry on thanks to economic data that increases the likelihood of the Federal Reserve pausing its war against inflation.

"Technology has come storming back in early 2023," Jeffrey Buchbinder said in a research note seen by Insider, adding that LPL has upgraded its outlook on tech stocks from negative to neutral.

"Our technical analysis work is pointing to further potential gains ahead, and macroeconomic conditions are becoming more favorable for growth stocks," he added.

The tech-heavy Nasdaq Composite index has surged at the start of 2023, jumping just under 15% year-to-date. The benchmark S&P 500 is up 7% over the same period.

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The Nasdaq has outperformed despite tech stocks' relatively ordinary earnings growth because investors are seizing upon recent economic data that's adding support to the view that the Fed might stop hiking interest rates soon, according to LPL's Buchbinder.

The latest Consumer Price Index report showed inflation continued to slow in February, while weaker-than-expected jobs data released earlier this week suggested the labor market is also starting to cool.

The prospect of an end to the Fed's rate increases would likely drive further gains for tech stocks – because when rates stop rising, companies can borrow at a fixed rate, boosting the future cash flows that make up a core part of their valuations.

"Nothing about technology's points to outperformance," Buchbinder wrote. "Earnings growth doesn't stand out, nor do estimate revisions."

"But the sector is clearly in favor right now, our technical analysis work is pointing to further potential gains ahead, and macroeconomic conditions are becoming more favorable for growth stocks," he added.

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Read more: Tech stocks are the new 'safety trade' as the banking turmoil stokes market volatility, a Wedbush analyst says

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