Equity markets ignore a “laundry list” of potential risks in their recent uptrend, and there could be a significant pullback, according to Julian Howard, investment director of multi-asset solutions at GAM Investments.

Despite the risks associated with the sharp rise in interest rates over the past 15 months, technology stocks in particular have led the charge so far this year, as investors rushed to get exposure to the artificial intelligence boom.

The Nasdaq 100 closed Friday’s session up 33% over the year, while the S&P 500 rose more than 11% and the pan-European Stoxx 600 added just under 9%.

However, in light of the latest round of economic data, economists are starting to build up the possibility of a rate hike by the US Federal Reserve, as the US economy and jobs market remain resilient, while core inflation is proving more steady than expected.

Howard told CNBC’s “Squawk Box Europe” Monday that given this risk, the Nasdaq has been “very expensive” right now, and now is the time for investors to “wait it out rather than get aggressively involved in this market.”

“There’s a laundry list of problems, interest rates and inflation haven’t gone away. The debt ceiling is gone, and I think there’s a sense that markets actually need to get the focus back on inflation and rates,” Howard said.

“The American consumer is very ambivalent about inflation, they’re kind of expecting higher inflation now, and that’s dangerous because that perpetuates higher inflation itself, because obviously expectations lead to higher inflation.”

Further increases in borrowing costs would also raise discount rates – a measure Wall Street uses to value stocks by knowing the value of future earnings. That won’t bode well for tech stocks that have been much of the recent driving force behind US equity markets, where higher discount rates typically result in lower cash flow going forward.

The Fed has raised benchmark interest rates 10 times since March 2022 in an effort to combat stubbornly high inflation.

Some Fed policymakers have in recent weeks expressed a willingness to pause the rate-hike cycle at the June central bank meeting, and the market is now pricing in around an 80% chance of that outcome, according to the Federal Reserve. CME Group FedWatch a tool. However, several Fed officials and economists hinted that more monetary tightening may be needed later in the year.

“Trading in AI technologies started to fade in the latter half of last week, and I think that could continue, because if you think about it, long-term assets like technology stocks, they’re the most sensitive to the money price and the prevailing discount rate,” Howard said.

“If that discount rate starts to pick up because investors feel, in fact, that the Fed isn’t done after all, we could have a pretty big correction, so we’re a little bit cautious there in terms of the next few weeks and months.”

The Greater Amman Municipality sees a long-term bleak macroeconomic picture across the major economies, with secular stagnation as the underlying case. She believes the “Goldilocks” environment for equities that has prevailed since October is no longer sustainable.

Although it goes against much of the consensus on Wall Street, Morgan Stanley also predicted in a research note last week that slowing US real and nominal growth will lead to sharp cuts to earnings expectations, which will further dampen the rally in US stocks.

The Wall Street giant expects earnings per share to be about 16% lower than both last year’s results and the current consensus for 2023, before recovering in 2024.

Strategists at Morgan Stanley said that a variety of “big picture” indicators continued to recommend that investors go “on the defensive.”

“The US Cycle Index, Bank Lending Terms, Yield Curve, Commodity Prices, Leading Economic Indicators Indices, and Unemployment Rate all indicate worse-than-average forward equity returns and better-than-average returns for high-quality bonds,” they said.