According to analysis, the asset allocation research head at Goldman Sachs Group stated that the recent collective decline in technology stocks, following a sustained rise in speculative positioning within the sector, represents a healthy market phenomenon.
In an interview, Mueller-Glissman noted, "The rally in the technology sector has been substantial, with momentum stocks showing significant gains. This has been visibly reflected in a sharp increase in leveraged ETF and long option positions. Therefore, the current phase of market volatility and consolidation is not a negative development."
Following Broadcom Inc (AVGO.US) issuing weaker-than-expected earnings guidance, Mueller-Glissman cautioned that investors should not simply extrapolate the earnings performance of cyclical tech hardware and semiconductor industries in a linear fashion.
In his view, the most significant risk in the current U.S. stock market is investors beginning to question the logic of robust earnings growth in the technology sector, which has been supporting the broader market's upward trajectory for the full year.
S&P 500 constituent companies reported their strongest quarterly earnings growth in five years during Q1, with the core driver being large technology giants.
It is reported that, benefiting from the earnings realization of companies in the AI industry chain, the overall earnings growth rate for the S&P 500 could potentially exceed 20% by 2026.
Mueller-Glissman added that if navigation through the Strait of Hormuz resumes, the market's upward narrative could potentially expand beyond the singular focus on AI momentum stocks, spreading to European equities and bond-related assets.
He also mentioned that low-volatility sectors, due to insufficient tech allocation and high sensitivity to rising interest rates, have significantly underperformed momentum growth stocks this year, resulting in an extreme divergence in the performance of these two stock categories.
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