How cautious should investors be on Big Tech, growth stocks?

Earnings season is underway for Big Tech, with several stocks having mixed reactions despite beating expectations. This includes Meta (META), releasing third-quarter earnings Wednesday afternoon, yet seeing shares trend lower Thursday morning after doubling its revenue.

Investors have been watching the sector closely, hoping it will bolster the market which has seen a downturn among rising Treasury yields and these mixed results. The Citadel Accounting & Finance Professor Paul Meeks joins Yahoo Finance to discuss why investors should show restraint and remain cautious on tech and growth stocks, despite all the hype with innovations and investments in AI.

"Think about a company like Nvidia (NVDA), it tripled in the first half of the year, it's come off a bit, but not even a meaningful correction yet. So, unfortunately, the sector that I follow the closest, technology, could have some more downside risks," Meeks says. "So my strategy — whether it be Meta today or Alphabet (GOOG ,GOOGL) yesterday — is if you believe in these companies long term... what I'd do is begin to scale into the position and continue to add to my position until we find some solid basis on these stocks."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- Well, let's talk a little bit more about the macro, exactly what is clouding the outlook right now. When you take away, I guess my takeaway from what you just said, was the fact that it's enough it sounds like to keep the markets on edge at this point. So what does that mean then in terms of the trading action that will likely see between now and the end of the year?

PAUL MEEKS: I think it's going to continue to be volatile with probably a skew to the downside. Remember, some of these tech stocks, like think about a company like NVIDIA, it tripled in the first half of the year. It has come off a bit but not even a meaningful correction yet. So unfortunately, the sector that I follow the closest technology could have some more downside risks. So my strategy here, whether it be Meta today or Alphabet yesterday is if you believe in these companies long term, which I absolutely do, what I do is I begin to scale into the position and continue to add to my position until we find some solid bases on these stocks.

So if you're a long term investor, I'm cool to buy some of these stocks today but go in slowly and deliberately. I think that that is the way to go prudently.

- What would be those solid bases? What would be those catalysts that you would be looking for to signal that we may be eventually seeing some type of turnaround or at least that there's a bottom that's set in?

PAUL MEEKS: Yeah. I think the key thing is, you'd like to see companies be more bullish in their guidance for future quarters. But I do, again, think that that's a small bit of it. I think the major bit is give me some visibility. Nobody's going to know for certain, but give me some visibility that maybe we'll ratchet interest rates up one more time. That's not controversial at all. But when do we start to lower rates from this high plateau? Again, we're not going to be able to pick the day. We're not going to be able to pick the Fed meeting in which that happens.

But if I feel more comfortable that that's the next step in the evolution of this market, then I'm more confident with the tech names that I've circled up, that I like long term to go in and buy them even more aggressively.

- Well, I'm curious just from an investment strategist standpoint, how you're looking at the recent data that we've gotten out? Because we've talked so much about the resilient consumer, the latest data that we've gotten, even the consumer staples reports that we've gotten so far this quarter have really pointed to the fact that people are still out there spending we had the GDP number out this morning, 4.9% growth in the third quarter. What does that mean then in terms of how you think the Fed is looking at these reports? And how that could potentially influence their next move?

PAUL MEEKS: Sure. I think the Fed is being data-dependent at this point. Because if we're not in the eighth or ninth inning, I don't know what we are for rates. They can't go much higher. But I do think that after the big push in GDP in the quarter just past, that we will start to see a little bit of sagging. And at that point, we might have some realism. Some of these companies in their guidance for the fourth quarter and for 2024 are noticing these things. They talk about green shoots of good stuff. This could be green shoots of bad stuff. And that wouldn't necessarily be bad, because then we could see some confidence that rates will start to fall.

So I do think that we will see, unfortunately or fortunately, from your perspective, a material slowdown in all these things that drive the economy as we go into the fourth quarter of 2023, and particularly as we steer into the first half of 2024.