Is a bubble burst on the horizon Hedge funds selling tech stocks at a rate not seen in years
Over the past few months, technology stocks have been the stars of the market, propelling indices like the S&P 500 to record-breaking gains. However, concerns are now arising that this upward momentum may not be sustained, as hedge funds are offloading technology stocks at an unprecedented rate. This worrying trend was highlighted in data shared by the Michael Burry stock tracker in a recent post on June 27. The data, sourced from a Goldman Sachs report, revealed that hedge funds are aggressively selling off tech stocks, making June a record month for such activity.
The data specifically focused on the US Technology, Media, and Telecommunications (TMT) sector, which encompasses both information technology and communication services. It measured the monthly notional net flow (Z score) in this sector, providing insights into the trading behavior of hedge funds. The Z score indicates the deviation from the mean net flow and ranges from -2.5 to 2.5. Over the years, there have been fluctuations in buying and selling activities.
The chart representing this data showed two main sections: buying (above the zero line) and selling (below the zero line). It revealed periods of aggressive buying in 2018 and 2020, with Z scores exceeding 1.5. However, the most concerning observation was the significant selling activity seen in June 2024. The Z score dropped to nearly -2.0, indicating a substantial increase in selling pressure.
The aggressive offloading of tech stocks by hedge funds raises concerns about a potential bubble burst in the technology sector. This trend could be attributed to various factors. Valuation concerns may be driving hedge funds to lock in profits, anticipating a market correction, as tech stocks have reached all-time highs in recent months. Macroeconomic factors such as rising interest rates, inflation, and geopolitical tensions may also be prompting a shift away from high-risk tech stocks. Furthermore, investors might be reallocating funds to other perceived safer or undervalued sectors, contributing to the sell-off in tech amid increasing uncertainty about a potential recession.
It is important to note that this selling activity is primarily seen in specific tech stocks that have played a significant role in driving the sector’s rally. For example, semiconductor giant Nvidia has experienced an influx of retail investors but is also witnessing significant selling by company insiders. These factors suggest the possibility of a correction in the stock.
It is worth mentioning that Nvidia’s venture into the AI field has generated increased investor interest, making it the world’s most valuable company in terms of market capitalization.
Disclaimer: The content of this article should not be considered as investment advice. Investing carries risks, and your capital is at stake.