Is it time to return to tech stocks? Here's what Citi, BlackRock and other pros are saying

Published Wed, Nov 16 20226:29 PM ESTUpdated Wed, Nov 16 202211:12 PM EST

It's been a brutal year for tech, as markets flee growth stocks in the face of rising interest rates and other headwinds. The tech industry has also been hit by layoffs, with Meta last week announcing plans to cut more than 11,000 jobs . Amazon is also said to be laying off workers. With inflation figures rising less than expected , however, Big Tech stocks rallied last week on investor hopes that a peak is in sight. The Nasdaq Composite surged 7.35% in a one-day gain last week — its best since March 2020. Is it time for investors to get back into tech? Here's what the pros are saying. Citi A less aggressive monetary policy direction from the U.S. Federal Reserve will ultimately benefit tech stocks, but it's "far from making a true policy pivot" despite the inflation report suggesting that prices are abating in some sectors, said Citi. "Technology shares benefited from the pandemic environment. With the cost of cash nearly 'zero,' the ability to 'spend to grow revenues' and to take risk for big future payouts was enabled," the bank said in a Nov. 14 report. "Now the opposite is true. Risk appetite has faded, and the certainty of growing cash flows is valued." Citi said that since late October, the sentiment across the tech industry has shifted toward "hunkering down," noting that dozens of major firms have announced hiring freezes or layoffs in an effort to preserve free cash flow. "From a tactical viewpoint, we are hesitant to chase sharp moves higher in technology shares until the extent of impending economic weakness becomes clearer," Citi said. "We acknowledge that valuations reflect new, higher capital costs and more conservative growth estimates, but immediate increases in profits and dividends are unlikely." Citi said investors should avoid economically sensitive stocks, and turn instead to those likely to be more defensive, such as software and cybersecurity firms. BlackRock BlackRock said that 2023 "could well be the year to upend almost three years of growth and tech stocks moving in virtual unison." Because of economic headwinds this year, BlackRock said, relative valuations may now appear more attractive than in recent years, with growth and tech stocks currently undervalued. The world's largest asset manager, however, recommended investing with more precision than simply buying growth or tech. According to a BlackRock report released this week, there are three themes in particular that seem in a position to weather the difficult economic environment in the near term and also benefit from "powerful" forces in the long run: infrastructure, health care and certain tech sectors. "Not all tech is the same, as tech-staples could prove resilient amid tighter wallets," it said. "We believe that cybersecurity and robotics could be better positioned for a slowdown than this year's indiscriminate selloff would indicate." The asset manager views cybersecurity as being the least likely tech expense to be cut in a downturn, adding that cyber attacks have spiked 81% from pre-pandemic levels. Robotics offer "one of the most powerful tools" in alleviating job pressures such as increasing wage costs and reshoring. Others Louis Navellier, chief investment officer at asset manager Navellier & Associates, told CNBC Pro in early November there will be "persistent selling pressure" in tech, since many Big Tech stocks are faltering. "Since the big technology stocks are suffering from a strong U.S. dollar as well as lower advertising revenue, they could be steadily declining for several years as the tracking managers reduce their weight in technology as they shrink in the S & P 500 and other indices," he said. Thomas McGarrity, head of equities for RBC Wealth Management in the British Isles, urged investors to be selective. He said they should focus on company fundamentals and take stock-specific risks, rather than on when to get back into the Nasdaq index. "[Nasdaq] ultimately is going to remain highly negatively correlated to direction of yields and is therefore more of a macro bet," he told CNBC Pro on Nov. 16.