By Yasin Ebrahim
Investing.com – The Dow cut some losses Monday as investor bets on cyclical stocks against growth stocks continued amid fears inflation could force the Federal Reserve into action sooner rather than later.
The Dow Jones Industrial Average fell 0.16%, or 54 points, but been down about 205 points at the lows. The S&P 500 fell 0.25%, and Nasdaq Composite slipped 0.38%
Tech continues to bear the brunt of inflationary concerns amid fears the Federal Reserve could be forced into reining in loose monetary policy sooner than expected.
Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), and Microsoft (NASDAQ:MSFT) ended in the red, while Google-parent Alphabet (NASDAQ:GOOGL) and Amazon.com (NASDAQ:AMZN) ended higher.
Morgan Stanley (NYSE:MS) analyst Brian Nowak reiterated his overweight rating on Amazon with a target of $4,500, while going on to make a case for the $6,000 per share mark, citing a large addressable market.
"These factors could justify a higher PEG, and a PEG of ~2-2.5X would imply a ~$5,000-$6,000 share price within the next 12 months (potentially a double from here)," Nowak wrote.
Fed Vice Chair Richard Clarida said the jump in inflation seen in the April data last week was likely driven by transitory factors.
"What I would say is, in my judgment, through that April employment report, we have not made substantial further progress," Clarida said Monday, reiterating that it was yet too early to talk about the Fed scaling back bond purchases.
But not every tech company was in the red as Seagate Technology (NASDAQ:STX) and Western Digital (NASDAQ:WDC) racked up gains amid a hard drive supply squeeze from crypto miner demand.
"Our checks also suggest supply remains restricted (due to component - IC - sourcing limitations) and we are now seeing price lift in retail, which we view as another favorable indicator for HDD vendors," Wedbush analyst Matt Bryson said in a note.
Some on Wall Street suggest there will be more short-term pain but longer-term gain ahead, particularly for the economically-sensitive cyclicals sector.
After the correction has played out in the near term, Morgan Stanley equity strategies said, they see a bull market resuming with better breadth and a reflationary tilt. "They overweight sectors most levered to reflation on a longer-term view (financials, materials and industrials) while favoring reasonably priced growth (healthcare) over more expensive growth (technology)," it added.
Cyclicals were modestly higher, led by energy as oil prices rebounded from their lows of the day.
Cabot Oil & Gas (NYSE:COG), Marathon Petroleum (NYSE:MPC) and Baker Hughes A Ge LLC (NYSE:BKR) were among the biggest gainers in the sector.
On the deal front, AT&T (NYSE:T) announced a deal to merge its WarnerMedia business with Discovery (NASDAQ:DISCA) in a $43 billion deal.
In other news, Tesla (NASDAQ:TSLA), Square, MicroStrategy (NASDAQ:MSTR) and Coinbase (NASDAQ:COIN) fell sharply on their exposure to bitcoin as a bloody crypto selloff ensued.