J.P. Morgan says recent run in technology shares 'becoming stretched'

Analysts at J.P.Morgan cautioned clients on Tuesday that the recent run in the Technology space was becoming "stretched" in absolute terms.

"It is looking overbought, close to all-time highs, with RSIs that are nearing elevated territory," Mislav Matejka said in a research note sent to clients.

The analysts also cited valuations for the so-called FAANG shares were one standard deviation expensive, while globally price-to-earnings multiples for the sector were nearing 20-year highs.

Shares of Facebook, Amazon, Apple, Netflix and Google meanwhile had rebounded by 26% year-to-date and Tech generally appeared to have over-discounted the expected drop in bond yields.

There was also the risk that the Federal Reserve would not deliver on market forecasts for interest rate cuts in the back half of 2023.

Consensus estimates for a 140 basis point improvement in profit margins at Tech companies might also prove wide of the mark, Matejka and his team said.

That did not mean that clients should go "short" Tech, Matejka said.

Indeed, J.P.Morgan still thought that the sector would trade better than in 2022 relative to the market.

Yet for over the next few months they believed that it was the defensive areas of the market such as Telecoms, Utilities, Staples and Healthcare that might be the best place to be in.