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Bank of America senior banker Rick Sherlund sees big market changes ahead.
According to Sherlund, the optimism surrounding tech stocks will return this year — but the key is to weather the upcoming earnings season first.
The vice chairman of the company’s technology investment bank told CNBC’s “Fast Money” on Thursday, “What we have to do is de-risk the 2023 numbers. “As we go through the fourth quarter earnings, I think companies will indicate a reduction in power. They talk about reducing costs to market … all this is encouraging.”
Sherlund Knowledge is software. During his tenure as an analyst, he hit #1 on the Institutional Investor’s Star Analyst List 17 times in a row.
And, he is best known for leading Goldman Sachs’ technology research group through the 2000 dot-com bubble, a period he called “breathing.” The latest market situation is reminiscent of the previous downturn.
“2022 was a terrible year for them [software] Stocks,” Sherlund said. “We’ve seen a huge bump in valuations. The good news is that a downturn will eventually be followed by an upward turn. So we’ve had a lot of intersections lately.
His latest market forecast is tech-heavy NasdaqRecent struggles. It fell 1.47% to 10,305.24 on Thursday, and is on a five-week losing streak.
Scherlund’s underlying case is that moving into high-growth areas like the cloud will provide long-term upside for software stocks.
“People need to realize that this sector is economically viable,” he said. Some demand may have been pushed forward when the epidemic occurred and the rate was zero.
Sherlund argues that a strong secular tailwind will eventually lift the group. And, it should help start consolidation in the form of mergers and acquisitions in the second half of the year.
“There’s going to be a willingness to pick up the phone and have an M&A conversation, where there’s been little incentive to do that in the past,” Scherlund said. “There is an awful lot of dry powder out there.”
He believes a stabilization in the direction of interest rate hikes by the Federal Reserve later this year will help the challenging financial markets and create consensus.
“This could finance a lot more M&A and LBOs. [leveraged buyouts]” Sherlund said.
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