- Tech stocks could be the next domino to fall as the market factors in looming economic risks, according to Morgan Stanley's Chris Toomey.
- "I don't think the technology industry is immune from the overall economy," Toomey told CNBC.
- The tech sector has enjoyed a sizzling rally so far this year, thanks in part to the hype over artificial intelligence.
The technology sector isn't immune to economic risks - and could be the next domino to fall as part of an overall stock-market decline, according to Morgan Stanely's Chris Toomey.
In an interview with CNBC on Friday, Toomey, a managing director at the Wall Street Bank's wealth mangement division, said the banking turmoil sent two-year Treasury yields crashing, triggering an investor rush into tech stocks.
"When rates are crashing, you get the sense that long-duration assets are going to do well, so you have people running into tech which I could say is that sequential next domino with regards to the market falling out," Toomey said.
Despite the sizzling rally in tech stocks so far this year thanks in part to an artificial intelligence boom, Toomey said the sector isn't immune from problems facing the overall economy, including recession risks.
"I don't think the technology industry is immune from the overall economy," Toomey said, adding that the US is heading into a earnings downturn and is vulnerable to an economic slump.
"We now are officially going into an earnings recession. There's is a 50-50 chance, depending on which way you look, as to whether we're going into an actual economic recession," he said.
Several market experts have doubled down on their warnings about a looming recession in the coming quarters after data showed the US economy slowed sharply in the first quarter.
Growth is expected to continue slowing after the Federal Reserve boosted interest rates aggressively over the past year in a bid to tame consumer-price pressure.
With inflation now rapidly cooling - falling to 4.9% in April after peaking at 9% last June - markets are warming to the idea that the US central bank could start cutting rates. But that's unlikely to be a bullish sign for tech and the economy, according to Toomey.
"We're not in this situation where the economy is growing rapidly, which is a situation where we actually have to cut rates in order to keep the economy going. This is a situation where we are turning lower, and we need these rate cuts to keep the economy from really going much lower," Toomey said.
"We need something that's going to pre-empt those rate cuts, and that preemption is going to be negative for earnings and pull down stocks," he added.