Recently, the stock market has seen a surge in technology stocks, propelling major indices like the S&P 500 to new heights. This rally, largely fueled by advancements in artificial intelligence (AI) among other factors, has sparked concerns about its sustainability.
An alarming trend highlighted by Michael Burry’s stock tracker on June 27, referencing a Goldman Sachs report, reveals that hedge funds are rapidly shedding their tech holdings. According to the report, this sell-off is unprecedented, marking June as a record-breaking month for such activities.
Goldman Sachs reported, “This is unprecedented. Hedge funds are aggressively dumping tech stocks at a rate not seen in years. June is setting new records.”
The data from Goldman Sachs charts the monthly notional net flow (Z score) within the US Technology, Media, and Telecommunications (TMT) sector, covering both IT and communication services. This Z score indicates deviations from average net flows, providing insights into hedge funds’ trading patterns.
The chart segments buying (above the zero line) and selling (below the zero line), with Z scores ranging from -2.5 to 2.5. Previous years have shown fluctuations, notably with peaks in buying around 2018 and 2020, where Z scores surpassed 1.5. However, the current data for June 2024 reveals a stark contrast, with the Z score plummeting to nearly -2.0, signifying intense selling pressure.
The aggressive divestment by hedge funds raises concerns about a potential bubble burst in the tech sector. Factors contributing to this include high valuations of tech stocks, prompting hedge funds to secure profits in anticipation of a market correction. Additionally, macroeconomic factors such as rising interest rates, inflation, and global uncertainties may be prompting a shift away from high-risk tech investments.
Investors might also be reallocating their assets to perceived safer havens or undervalued sectors, further contributing to the tech sell-off amid fears of an impending economic downturn.
It’s notable that specific tech stocks pivotal in driving the sector’s growth, like Nvidia, have seen conflicting trends. While retail investors are increasingly buying Nvidia shares, there’s also significant insider selling, potentially foreshadowing an equity correction.
Nvidia’s ventures into AI have attracted substantial investor interest, positioning the company as a global leader by market capitalization.
Disclaimer: The information presented here does not constitute investment advice. Investing carries risks, including the potential loss of capital.
