Oppenheimer: There is no bubble in US growth stocks, sector rotation prefers equal-weight NASDAQ-100 Index

According to the Zhitong Finance and Economics APP, Oppenheimer technical analyst Ari Wald expressed his views on whether the NASDAQ-100 Index is in a bubble territory. He mentioned that currently, growth stocks are not overvalued, but rather non-growth stocks are historically undervalued. When the gap between the two narrows, it may lead to a rebound in non-growth stocks rather than a sharp decline in growth stocks.

In a report, Wald wrote, "We still believe that the market differentiation, especially the gap between growth and non-growth stocks, may be the largest since the 1990s. Our different view remains that the main factor driving this gap is the weakness in the non-growth sector, not the strength in the growth sector."

He stated, "We can consider the NASDAQ-100 Index and the Russell 2000 Index as representatives of this relationship. Although this ratio has surpassed the peak of 2000, the five-year change rates for each part show significant differences between now and then."

"From our perspective, an anomaly is that the Russell Index is falling from single digits (5% in the fourth quarter of 2023), which is more in line with major market lows rather than highs. This is why we believe that the convergence in the coming years is more likely to be catalyzed by a catch-up effect."

"Firepower in Reserve"

Wald also has a positive outlook on the equally weighted NASDAQ-100 Index.

He mentioned, "As a representative of mid-cap growth stocks, we believe the equal-weighted index First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW.US) is a preferred sector rotation choice, as we see it striking an attractive balance between long-term growth leadership and mid-term rotation potential with lower market capitalization."

"The index rebounded in March of this year to the peak of November 2021 and has been consolidating near this key resistance level since then. We believe this consolidation eases overbought behavior before the expected breakout of the multi-year trend we anticipate."

He added, "Similar to our views on the S&P Equal Weight, Russell 2000 Index, Russell Value Index, and S&P High Beta Index, we believe this represents the firepower in reserve for the next stage of the bull market cycle." x-oss-process=image/format,jpg/quality,Q_90)