- Investors are loading up on mega-cap tech stocks as they turn more bearish, according to Bank of America.
- The bearishness comes amid a debt ceiling showdown that could spark more volatility.
- The bank said tech is the “most crowded trade” followed by shorting banks and shorting the US dollar.
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Mega-cap technology stocks have regained their shine with investors after last year’s poor performance.
According to Bank of America’s global fund manager survey, tech stocks are the “most crowded trade” on Wall Street as bearishness towards the broader stock market hits its highest level so far this year.
The dynamic of investors getting long tech stocks while they feel more bearish about the outlook for broader markets suggests mega-cap tech behemoths like Apple, Microsoft, Alphabet, and Amazon are returning to their safe haven status.
Mega-cap tech stocks have a war chest of cash and a wide moat around their businesses that in the past have enabled steady growth during periods of economic weakness. The sector also outperformed as banking turmoil hammered the wider market in recent months.
Investors allocation to technology stocks jumped 14 percentage points over the past month to 16% overweight, which represents the highest allocation since December 2021.
“Investors [are] most long growth vs value stocks since July 2020,” Bank of America’s Michael Hartnett said.
Meanwhile, investors are holding a high allocation to cash at 5.6% of their portfolio, and allocations to bonds has hit a 14-year high, according to the survey. Meanwhile, Bank of America’s proprietary Bull and Bear indicator is hovering around 3.4, which suggests positioning on Wall Street is still a contrarian positive for the market.
In other words, because so many people are bearish, that could actually serve as fuel for a continued rise in stocks as the bearish skeptics are slowly won over by rising stock prices and begin to put their own money to work, further pushing prices higher.
Investors of the survey highlighted the biggest tail risks facing the market right now, which included a credit crunch and recession, followed by high inflation and hawkish central banks. In terms of what could cause a credit event that leads to a recession, investors highlighted the shakiness of commercial real estate as the top worrying factor.
Finally, investors appear to have little concern about the ongoing debt ceiling showdown in Washington, D.C. According to the survey, 71% of surveyed investors expect a US debt ceiling resolution before the X-date, which the Treasury Department estimates is June 1.