Key Takeaways:
- Hedge funds, previously bullish on tech stocks, are now selling off their positions following Nvidia’s recent earnings report.
- This selling pressure has led to a net decrease in tech sector stocks over the last four trading sessions.
- Goldman Sachs anticipates that the dominance of the “Magnificent Seven” tech stocks will begin to wane in favor of broader economic indicators.
Nvidia’s blockbuster earnings report last week has prompted hedge funds to engage in significant selling activity within the tech sector. Hedge funds have been selling off tech stocks at the fastest rate in seven months, according to a note from Goldman Sachs’ prime brokerage unit. This selling trend persisted for four consecutive sessions, including the day after Nvidia’s earnings report.
Goldman Sachs’ analysts observed that hedge funds had been buying tech stocks for six consecutive weeks leading up to Nvidia’s earnings announcement. However, following the earnings report, they rapidly unloaded their positions in the sector.
Nvidia’s earnings report triggered a surge in investor enthusiasm, resulting in a remarkable $267 billion increase in market capitalization. This addition to market value is the largest single-day increase ever recorded.
Despite the positive sentiment surrounding Nvidia’s earnings, concerns have emerged about the sustainability of momentum in the tech sector. Peter Callahan, a tech, media, and telecom sector specialist, noted that the Nasdaq Composite has traded lower in four out of the last five sessions following the earnings announcement.
Hedge fund investors have opted to diversify their portfolios, moving away from the tech sector towards other high-quality stocks in real estate, consumer staples, and materials. This shift in investment focus comes as the Magnificent Seven tech giants conclude their earnings season.
According to analysts, the performance of these tech giants is expected to take a back seat to broader economic indicators such as inflation data and potential shifts in the Federal Reserve’s rate-cutting timelines.
Despite this, market confidence in tech stocks remains strong, buoyed by Nvidia’s remarkable performance. Last week, Nvidia alone contributed to 22% of the S&P 500’s weekly gain. Additionally, indicators such as the put-call skew, a measure of investor fear, have decreased. Moreover, retail trading activity in Nvidia has surged to its highest level in the past five years, reflecting continued retail investor interest in the stock.