Professional speculators are turning risk-on by gobbling up technology shares, after largely missing out on the new-year rally in the stock-market’s biggest winners.
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Hedge funds that make both bullish and bearish equity wagers snapped up computer and software makers for 12 straight sessions through Wednesday, according to data compiled by Goldman Sachs Group Inc.’s prime brokerage. While unwinding short sales dominated flows during the first week of February, the group has added to long positions in recent sessions — a sign of growing conviction in the information technology sector.
The improving appetite for tech shares has defied the advance in Treasury yields, a development that supposedly creates valuation pressure for richly priced stocks in particular. Yet with tech going from the bear market’s worst loser last year to the best performer in the S&P 500, fear of missing out has creeped up. At the same time the two-day market retreat this week on fresh fears over rising interest rates risks spurring a deeper stock rout — just as the fast money ramps up its tech purchases.
“Momentum play is overruling that rule of thumb that higher interest rates should be bad for tech,” said Craig Callahan, chief executive officer at Icon Advisers Inc. and author of “Unloved Bull Markets.” “Hedge funds weren’t in there early. They’re now chasing.”
IT companies were off to a strong start to 2023, bolstered by speculations that the Federal Reserve might cut interest rates later in the year. While that optimism has since proved misplaced, tech stocks kept their leadership. Despite a lackluster earnings season, shares like Meta Platforms Inc. have rallied as a flurry of job cuts eased concern over falling profitability.
Read the full article here by Lu Wang, Melissa Karsh, Advisor Perspectives.
