why investors worry about tech stocks By Reuters

© Reuters. The spread of the coronavirus disease (COVID-19) in New York

© Reuters. The spread of the coronavirus disease (COVID-19) in New York

By David Randall NEW YORK (Reuters) – Some investors are getting increasingly worried about the outlook for technology and big growth stocks after a massive rally which has pushed the index to record highs despite the coronavirus-inflicted economic damage. Few can complain about the performance of the S&P 500 Growth index, whose components range from Netflix Inc (NASDAQ:) to medical device maker ResMed Inc and is up more than 10% for the year to date while the broad S&P 500 remains down 2% over the same time. Instead, investors say the popularity of tech and growth stocks at a time of global economic uncertainty has left their valuations stretched and primed them for a decline. “Yesterday was a first warning shot for growth stocks and it might take a few weeks for the trade to come undone. Watch for Nasdaq volatility to be compressed as risk is priced out with common sense,” said Sebastien Galy, a senior macro strategist at Nordea Asset Management, referring to a technology sell-off late Monday. “The clock is ticking, significant prudence is warranted.” The tech-heavy Nasdaq Composite fell 0.5% early Tuesday, while the broad S&P 500 posted small gains, marking the second consecutive day that the Nasdaq underperformed the overall market. Overall, 74% of global fund managers are long tech stocks, making it the most-crowded trade in the multi-decade history of the Bank of America (NYSE:) Merrill Fund Manager survey. Such lopsided trades often result in subsequent underperformance, a Reuters analysis found. The “best short is tech stocks given positioning and stretched performance,” analysts at the firm noted in a report. Further economic shutdowns in California, which has seen a surge in coronavirus cases, could also weigh on tech and growth stocks, said Spreadex analyst Connor Campbell. “California is specifically a tech haven, so this is going to have a disproportionate effect on tech stocks,” Campbell says. “That is the home of American tech, if that spreads further, if lockdown restrictions get tighter in California, then this will eventually get a knock-on effect on those big tech firms.” An increase in inflation-adjusted interest rates should benefit value stocks at the expense of popular companies such as Amazon.com Inc (NASDAQ:), Apple Inc (NASDAQ:) and Google-parent Alphabet (NASDAQ:) Inc, said billionaire investor Bill Gross. “Value stocks, versus growth stocks, should be an investor’s preference in the near-term future,” Gross wrote.
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