In turbulent seas of change, hedge funds are offloading technology stocks, according to data from Goldman Sachs Group Inc.’s prime brokerage unit.
This movement away from tech investments began both before and after the latest earnings announcement from Nvidia Corp. Hedge fund managers seized the opportunity to reap profits from the sector’s recent surge.
The most pronounced wave of selling occurred on the heels of Nvidia’s earnings release, with Goldman Sachs’ prime brokerage data highlighting a sell-off intensity ranking in the 98th percentile over the last five years.
The data also indicated a surge in retail trading, with Nvidia’s notional traded volume hitting the 99.96th percentile for the week, based on Goldman’s prime brokerage metrics.
The Sustainability Conundrum: Analyst Peter Callahan from Goldman Sachs expressed skepticism about the durability of this upswing.
Despite the favorable initial reactions to tech earnings, recent trading trends and the performance of major tech players following their earnings reports are sowing seeds of doubt regarding future growth.
“Despite the upbeat atmosphere last week, the trading landscape is beginning to show hints of instability,” Callahan penned.
Substantial declines in the stock prices of companies like Palo Alto Networks Inc., Rivian Automotive Inc., Booking Holdings Inc., MercadoLibre Inc., and Etsy Inc. point to a market reassessment of the value and prospects of tech equities.
“Consequently, concerns over the sustainability of this momentum have sparked tensions,” Callahan stated, underlining a prevailing unease about the market’s trajectory.
Shift to Macroeconomic Metrics: The market’s gaze is shifting towards a gamut of economic factors and the looming specter of interest rate modifications.
As the tech earnings season draws to a close, Callahan predicts a pivot towards macroeconomic indicators, including the Personal Consumption Expenditures (PCE) index, upcoming events like Super Tuesday, Nonfarm Payrolls (NFPs), and the Consumer Price Index (CPI) in the next 20 days.
This transition unfolds against the backdrop of increasing economic heat, evident in 10-year Treasury yields nearing year-to-date peaks of around 4.3%, well eclipsing the 100-day moving average.
Furthermore, expectations regarding potential interest rate adjustments are being recalibrated due to last month’s higher-than-anticipated inflation figures.
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