Many strategists have hypothesized that the sell-off is the result of several months of uninterrupted gains for equity markets, a correction to overpriced stocks and inflated assets. And with the yield on the 10-year Treasury note climbing roughly 40 basis points since the start of the year, investors may be in for a bumpy ride.
For his part, Wilson is the single most bearish strategist on Wall Street, with a year-end S&P 500 target of 2,750, just 1 percent above its current level. He believes it may be time to shift equity exposure toward defensive stocks and away from cyclical sectors like technology.
Cyclical stock performance tends to follow the health of the overall economy, while defensive stock performance is generally resistant to external pressures.
“Technology does not look very good. In fact, it looks downright awful,” Wilson warned in his Monday note. “We noticed the bond proxies —Telecom, Utilities and Staples–were all significantly underperforming recent revisions which led us to write a note two weeks ago suggesting these sectors could snap back.”
Indeed, he added, that has happened with the cyclicals underperforming defensives by approximately 5 percent despite the fact that interest rates have continued to rise.
Wilson downgraded the technology sector to equal-weight from overweight and highlighted weaker performance in semiconductor and software companies.
Chipmakers were some of the best-performing stocks in 2017, with names like Broadcom and Micron posting gains of 17 percent and 66 percent respectively over the past 12 months. But 2018 has proven to be more turbulent for the tech companies, with Broadcom and Micron down 11 percent each over the past month.