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    3 reasons why Truist's CIO says it's time to plow money into the tech sector again despite its worst one-month underperformance in 20 years

    By Christine Ji,

    1 day ago

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    https://img.particlenews.com/image.php?url=1M0sNQ_0uxRls2Y00
    • Keith Lerner sees now as a perfect buying opportunity for tech as others sell off their positions.
    • The Truist chief strategist and CIO just upgraded his rating on the sector to overweight.
    • Lerner shares 3 reasons why he thinks now is the right time to double down on tech.

    While some people on Wall Street see the last week as a sign that the tech sector is a deflating bubble, one chief investment officer is doubling down.

    Truist's Chief Strategist and CIO Keith Lerner is even more optimistic about the sector now than before last week's double-digit sell-off. In an August 8 note, Lerner upgraded Truist's rating on the technology sector back to overweight after previously downgrading it to neutral earlier in June of this year.

    This might come as a surprise to some after the technology sector experienced the most drastic underperformance relative to the S&P 500 in the last two decades. But for Lerner, that's all the more reason to be bullish on the future of tech stocks.

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    3 reasons to buy the dip

    Tech investors shouldn't be spooked by the market bloodbath of last week. In fact, they should be overjoyed, Lerner thinks.

    Back in June, Truist downgraded the tech sector to neutral, citing concerns that the sector had become overvalued after outperforming the S&P 500 by almost 11%, the highest level since 2002. In Lerner's eyes, the sector's outperformance had raised investor expectations, making them overly sensitive to any negative news.

    "There will likely be a better opportunity to deploy capital in a meaningful way, and we will be looking for a better entry point to upgrade the sector in the future," Lerner wrote in June.

    Now, after a sharp market sell-off, it looks like that "better entry point" is finally here. Tech stocks have finally reset and become much cheaper. As anxious investors aggressively sell off their tech positions, Lerner sees this as an opportunity to double down on tech.

    One indicator Lerner uses to gauge whether it's a good time to buy tech stocks is how oversold the sector is. Oversold stocks trade at steep discounts after heavy selling and have the potential to bounce back in price. To gauge this, Lerner looks at the percentage of stocks in the sector that are above the 50-day moving average. Currently, that number sits at 22%. While that's not as low as the 10% number that the market saw in April of this year, it's a precipitous decrease from 94% in July.

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    Overall, the sector has decreased 12% from its mid-July high. Semiconductor stocks have fallen almost 20%.

    Although prices have plunged, Lerner believes that the underlying fundamentals driving tech are still intact. The secular megatrend of AI remains strong as Big Tech companies continue to invest billions into developing the technology. Forward earnings estimates for the tech sector are rising to all-time highs, indicating continued optimism.

    "This suggests the recent setback was due more to crowded positioning as opposed to a shift in fundamentals," Lerner wrote.

    Investor expectations have now become recalibrated after the correction, providing tech stocks with more room to grow, in Lerner's opinion.

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    A cooling macroeconomic environment will also provide a boost to tech stocks as investors flock back to Big Tech, according to Lerner. He's confident that the US economy is still on an upward bull market trajectory, albeit with some temporary bumpiness.

    With the Fed likely to begin cutting rates in September, many of the Big Tech companies are poised to benefit. Lerner believes that in a choppy, cooling growth environment, the best investments are high-quality companies with strong balance sheets. Big Tech companies certainly fit the bill: "The Mag Seven is where the earnings growth is coming from," Lerner told Business Insider in an interview.

    This might not be the bottom yet

    While the recent market rotation has created a cheap entry point for investors to put more money in tech, Lerner sees plenty more buying opportunities down the road. Tech could get even cheaper in the coming weeks as the market continues to bottom out.

    "At previous bottoms, the sector moved to an even deeper oversold condition. This could certainly happen again, meaning the correction may have not fully run its course," Lerner wrote.

    Regardless, Lerner believes the tech sector's double-digit decrease over the last week has solidly put this part of the market back in the overweight category. For investors looking to double down on their tech allocations, funds such as the Invesco QQQ ETF ( QQQ ), the Vanguard Information Technology ETF ( VGT ), and the VanEck Semiconductor ETF ( SMH ) all provide exposure to the sector.

    Read the original article on Business Insider
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