Crowded trade, high valuations: why investors worry about tech stocks

NEW YORK: Some investors are getting increasingly worried about the outlook for technology and big growth stocks after a massive rally which has pushed the Nasdaq Composite index to record highs despite the coronavirus-inflicted economic damage.

"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.

Overall, 74 per cent of global fund managers are long tech stocks, making it the most-crowded trade in the multi-decade history of the Bank of America 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.

"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."

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