The Big Tech stock rally is over for now – but the equity market could still approach record highs this year, veteran investor says
- The Big Tech stock rally has run its course, but the broader equity market will still approach record highs this year, according to the chairman of Sanders Morris Harris.
- "We instead believe smaller technology stocks will likely lead the market," George Ball told Fortune.
The rally in Big Tech stocks has "run its course," but the broader US equity market will still extend gains toward record highs this year, according to the chairman of Sanders Morris Harris, a US investment firm that manages $4.9 billion for clients.
"We expect the broader markets to move back near record highs at some point in 2023, but it won't likely be because of Big Tech," George Ball told Fortune on Tuesday. "We instead believe smaller technology stocks will likely lead the market."
The veteran investor thinks the largest blue-chip tech companies have gotten so big that they can't grow much more, and that it would be "almost impossible" for their revenues to swell at the pace they have done for the past 10 years.
So smaller tech stocks - which have fallen 50%-80% since the market's record highs reached in November 2021 - will power the market higher, given that there's more room for their revenue to grow, according to Ball.
"Hence upside potential after the partial recovery is medium grade at best. Smaller but established tech companies are where the almost unbounded growth opportunities exist," he told the publication.
Tech stocks have rallied this year, with the tech-heavy Nasdaq Composite up nearly 14% year to date, recovering after a tough 2022. That's despite the Federal Reserve's aggressive interest-rate hikes over the past year that tend to hurt earnings and stocks.
"There is an increasing sense that corporate America can cope with higher interest rates more successfully than expected, and that is attracting more buyers of stocks," Ball told Fortune.
But in order to rise toward record highs, further major increases in the key stock indexes would be required, Ball suggested. The Dow Jones is roughly 9% away from its January 2022 record high while the S&P 500 is around 16% below its all-time peak.
He maintained that while 2023 won't be a record for the market's performance in his opinion, investors shouldn't be discouraged.
"Stay invested, but be sure to avoid speculative excess. This will be a year of three yards and a cloud of dust, not 60-yard touchdown passes," he said, referencing an American football idiom. "The tortoise will beat the hare, once again."