In a recent note to investors, he wrote economically sensitive groups will overtake growth as a leading market driver, and the powerful rotation could happen as soon as this month. So, he’s urging investors who are overweight Big Tech to drop to market perform.
“Take some profits,” the firm’s head of equity strategy told CNBC’s “Trading Nation” on Friday. “It’s not that we hate tech. It’s just some of the tech companies are high growth, high risk, [and] high multiple.”
Meanwhile, Wall Street is coming off a positive month. The tech-heavy Nasdaq saw its sixth monthly gain in a row. It rallied more than 7% in April, closing the month at 13,860.76. The index is 2.5% below its all-time high hit last Thursday.
Harvey attributes the strength in growth and technology to the benchmark 10-year Treasury Note yield falling almost 6% over the past month. It ended April at 1.62%
However, Harvey expects yields to breakout. His firm predicts the 10-year yield will hit 2% next month.
“We are just beginning a very aggressive GDP cycle, a very aggressive recovery. Typically, when you have growth and growth is abundant, you don’t want to pay a premium for tech,” he said. “That’s where we are right now.”
Harvey believes investors haven’t come to terms with the trouble inflation will create for Big Tech, growth stocks and the overall market.
“We’re going to start thinking about things like higher taxes. When do we taper? How high do rates go — assuming they go higher,” said Harvey. “You can get a bit more choppiness.”
Harvey plans to use any turbulence to his advantage. His strategy: Target groups well positioned to profit from inflation and a rapidly recovering economy.
“We want to add more cyclicality,” Harvey said. “We want to do that in financials. We want to do that in industrials. We want to do that in consumer services — whether it’s hotels. Whether it’s restaurants.”