Tech stocks: Don't buy them, but don't sell them either, strategist says

"Macro forces are shifting again." That's the warning from NewEdge Wealth Senior Portfolio Manager Ben Emons about trading in September. Emons highlights potential policy changes in Japan and stimulus in China as a couple of things that could make September a volatile month. So what does that mean for tech stocks? Emons is cautious given the stocks' valuations. In fact, Emons says "you do not want to increase your exposure" to tech stocks. Emons explains why in the video above.

Video Transcript

JULIE HYMAN: When you look at the history of Septembers, where do we stand from an investment perspective? Things have been a little rockier lately, tech stocks in particular have seemed a little more vulnerable to those higher rate expectations. So how do you put it all together?

BEN EMONS: Yeah, it's a traditional weak month, from a seasonality point of view. I guess that has to do with rebalancing, or it has to do with just that that has been historically the way people look, at these seasonals. I would point more to October, that's much more of a difficult month.

But I do think we're at a juncture here, where there's macro forces are shifting, once again. We've got news out this, overnight, out of Japan, that they continue to look at changing their policy. That's a big macro factor. The stimulus in China is getting through their system, and they're increasing lending to the economy. And CPI is back out of deflation. So that shows there's some traction there.

So I think the September month could perhaps be volatile as October, but it is all about the economy. It's really about what we're going to have this week too on display. Retail sales, CPI, and PPI, with this UAW strike perhaps hanging over all of that. That's the macro that drives the markets. I think this is what we're going to be in for in this month, in terms of volatility.

BRAD SMITH: And you've been urging caution, in terms of investors that are perhaps looking at some of the more riskier assets that they would have leaned towards in the past. And not so much that the NASDAQ 100 is risky. But at the same time, technology, as a whole, had been under a little bit of fire, at least during the month of August here. So coming out of that, where would you continue to urge caution among investors?

BEN EMONS: Yeah, you would take into account the valuation. We are at multiples that are high, again, from the 20/21 levels. And so that makes people cautious, if you have interest rates sitting here at the top of the range and the tenure. And that, I think, is where the tension is, that if there is the risk that we are going to break out with rates higher, which possible, will given where the economy is, or what Japan is doing, these multiples will contract. And that's the mechanics.

And I think because we had such an incredible drive of the stock market by just a handful of stocks that are now at excessive multiples, yeah, that continues to be the risk for markets that does reverse, that we're getting some, let's say, mini repeat of what happened from 21 into 2022. I wouldn't call that we go back to that bear market analysis. I think that's not there, because the economy has strengthened since last year. It's actually got better ever since Powell had his big speech about hawkish and pain, the economy has only improved. So that's reflected in the stock market. I don't think that story has changed, but it's a valuation issue, that's why we're cautious.

JULIE HYMAN: So what does cautious mean for you then? Does it mean, hold onto your technology investments, don't add, don't subtract, and just hang out right now?

BEN EMONS: I think that's right, Julie. I think you do not want to increase your exposure, at this point. If you take the Apple Store, is a good example, as you just highlighted. It came completely out of nowhere that China suddenly puts this news out there of this band, at least as reported. It doesn't mean that people are stop using iPhones in China, but the market extrapolates it as, this is for future revenue, of Apple, a problem.

And so you cannot really discount those factors with too much of a complacency, just because this new iPhone comes out with all these gadgets and fantastic. We are dealing with high valuation for tech stocks. And you're dealing with macro factors. So I think you don't want to add here, but you don't have to outright sell either. These companies are really, really profitable. So I don't think that's a reason to detract from your position.