Investors should brace for a sell-off in tech stocks with Fed chair Powell set to deliver a hawkish message to lawmakers, Gene Munster says

• Tech stocks are vulnerable to a sell-off this week as Jerome Powell testifies to Congress, Gene Munster said.
• Powell will deliver semi-annual testimony to Senate and House lawmakers on Tuesday and Wednesday.

Expect to see a slump in technology stocks as Federal Reserve Chairman Jerome Powell this week signals to US lawmakers that interest rates will likely run even higher as the fight against inflation continues, veteran tech analyst Gene Munster said Monday.

The managing partner at Deepwater Asset Management spoke to CNBC about market positioning, with Powell set to appear Tuesday and Wednesday before Senate and House lawmakers for semi-annual testimony.

"[I] suspect that he's going to be pretty hawkish, and I suspect that that's going to kind of lay the groundwork for a sell-off in tech," Munster said.

The tech-focused Nasdaq Composite has outperformed the broader stock market at the start of 2023 after a brutal 2022 drove the index 33% lower last year. The index has picked up about 13% this year, even after February's pullback, and the information technology sector has so far been the S&P 500's second-best performing group.

Munster said Powell is poised to "retreat to his fallback position" of a more hawkish tone on monetary policy. Inflation has come off its peak levels, but recent readings indicate consumer and wholesale prices remain stubbornly high.

"I think what he learned with the last Fed meeting is that if he is not overly hawkish, the market tends to interpret any fractional positive news related to any sort of breaks coming up in interest rates," Munster said.

A fresh signal from Powell that policy makers will push up interest rates more to tamp down inflation could spark a sell-off in tech stocks as higher rates hurt the value of future profit made by tech companies.

The Nasdaq Composite fell more than 1% in February as investors up drove Treasury yields, pricing in expectations the Fed may bring up its benchmark interest rate to as high as 5.75%. The rate stands at 4.5%-4.75% currently.

For tech stocks, the first half of the year is going to be a difficult, said Munster. "And it's a very simple equation related to what we're seeing in the economy, and specifically related to inflation."

But the second half of this year and 2024 should be "great" for the sector, he said.

"I think that the numbers have come down now. We've seen more modest growth rates so that you just have easier comps, which sets up for a good investing period for tech," he said. "So near-term, more cautious, but I still think if investors believe and want to be fully invested, there are still great companies to be invested in."