At a Friday performance on Gasoline Gas PreMarket Prep, Cameron DawsonChief Investment Officer at New Edge Wealth, provided valuable insight into the state of the bond market and changing investor behavior Small-cap stocks to tech giants.

According to Dawson, the bond market is heavily influenced by Federal Reserve actions. She stressed that since the tightening cycle began, the market has tried to price in the Fed’s change of course several times, making adjustments based on changing economic data.

In particular, she pointed out the Personal consumption expenditure (PCE) data is hotter than expected This is a key indicator that a rate hike may be imminent in June, a departure from previous rate cut expectations.

Also read: The Fed’s favorite inflation indicator rose more-than-expected in April: Market expectations for a rate hike in June are rising

Dawson also addressed changing trends in equity investing — specifically, the rotation from small-cap companies to large tech companies.

She indicated that this is indicative of a late-cycle market scenario, with investors increasingly seeking growth in large-cap sectors. Despite the strong momentum in tech stocks, AI history and resilient market trends, Dawson cautioned that stretched valuations could face a reality check given the economic weakness, a situation that isn’t apparent yet but could materialize.

She pointed out that the typical inverse correlation between real interest rates and valuations for growth and technology stocks breaks down in 2023, further complicating the investment landscape.

As real interest rates near their highs, tech stocks have seen valuation multiples widen significantly, with top performers such as Nvidia Corporation NVDA The company’s valuation fell from 65x to 50x on revised earnings, suggesting potential for earnings acceleration but also inherent risks.

Continue reading: 10 Stocks React to April’s PCE: Marvell Technology Leads the Rally

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