By David Randall
NEW YORK (Reuters) – Some investors are increasingly concerned about the prospects for the technology and large stocks of growth after a massive recovery that has brought the Nasdaq Composite Index to record levels despite economic damage caused by the coronavirus.
“Yesterday was a first warning shot for growing stocks and it could take a few weeks to unravel trade. Watch for the volatility of the Nasdaq to compress as risk is priced with common sense,” said Sebastien Galy, a strategist. senior macro at Nordea Asset Management, referring to a technology sell-off on Monday night. “Time is running, significant caution is warranted.”
The tech-heavy Nasdaq Composite fell 0.5% early Tuesday, while the broad S&P 500 posted small gains, marking the second day in a row that the Nasdaq underperformed the general market.
Overall, 74% of global fund managers are long tech stocks, making it the busiest trade in the history of decades of Bank of America Merrill Fund Manager survey.
Such uneven swaps often result in subsequent underperformance, according to a Reuters analysis. “The best short is tech stocks given positioning and stretched performance,” analysts at the firm said in a report.
Other economic closings in California, which have seen a surge in coronavirus cases, could also weigh on growth and technology stocks, Spreadex analyst Connor Campbell said.
“California is specifically a tech paradise, so this will have a disproportionate effect on tech stocks,” says Campbell. “That is the home of American technology, if that extends even further, if the blocking restrictions are tightened in California, this will eventually have a negative effect on those big tech companies.”
“Value stocks, versus growth stocks, should be an investor’s preference in the near term,” Gross wrote.
(Reports by David Randall; additional reports by Kate Duguid and Joice Alves; edition by Megan Davies and Richard Chang)
