“There is Big Tech and there is everything else”. Ritholtz Wealth Management’s Michael Batnick’s pithy description of today’s market is borne out by Bank of America’s latest fund manager survey. Managers are more overweight in the technology sector than at any time since November 2021. Long tech is the most crowded trade in global markets.
Other metrics confirm this picture. Hedge fund exposure to mega-cap tech stocks is in the 99th percentile, says Goldman Sachs, compared to the 12th percentile in January. Tech stocks are at a record high relative to the S&P 500, says Bank of America, surpassing the dot-com bubble in 2000.
Is the enthusiasm overdone? Yes, says veteran analyst Richard Bernstein, who says there is “nothing particularly magnificent” about the so-called magnificent seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta.
Bernstein found more than 130 US companies growing earnings by over 25 per cent. Only one of the magnificent seven passed Bernstein’s screen and ranked 111th. Despite this, the big seven’s valuation is over twice that of the global equity market. Consequently, global markets resemble a “see-saw”, with the magnificent seven on one side and everything else on the other side.
The good news: investors’ “myopic” focus on mega-cap tech stocks, says Bernstein, is blinding them to a “generational investment opportunity in the broader global equity markets”.
