Recently, the leader of the stock market has been the technology stocks, which have driven the S&P 500 and other indices to new highs.
The data shared by Michael Burry’s stock tracker on June 27 revealed a concerning trend. According to a Goldman Sachs report, hedge funds are offloading technology stocks at an unprecedented rate.
Goldman Sachs just reported that hedge funds are aggressively offloading tech stocks at a rapid rate we haven’t seen in years. June is already a record month. pic.twitter.com/pxEEWNVYha
The data shows the monthly net flow (Z score) in the technology, media, and telecommunications (TMT) sector in the US. This metric shows the deviation from the average net flow, highlighting the trading patterns of hedge funds.
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Key insights from the data include buying and selling trends, with the net flow ranging from -2.5 to 2.5. Historically, there have been periods of significant buying, such as in 2018 and 2020, when the flow exceeded 1.5. However, in June 2024, there was a sharp increase in selling, with the metric dropping to nearly -2.0, indicating significant selling pressure.
The strong selling by hedge funds increases the likelihood of a bubble bursting in the technology sector.
This trend may be due to several factors: record-high valuations prompting profit-taking in anticipation of a market correction, macroeconomic concerns such as rising interest rates, inflation, and geopolitical tensions deterring investors from high-risk technology stocks, and potential reallocation of funds to safer or undervalued sectors amid recession fears.