Recently, the leaders of the stock market have been tech stocks, which have driven indices such as the S&P 500 to new highs.
The rally in tech stocks has been largely fueled by advancements in artificial intelligence, raising concerns about whether this momentum can be sustained.
Data shared by Michael Burry’s stock tracker on June 27 revealed a worrisome trend. According to a report by Goldman Sachs, hedge funds are offloading tech stocks at an unprecedented pace.
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.
The data shows the monthly net flow (Z score) in the Technology, Media, and Telecommunications (TMT) sector in the United States. This metric indicates 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 tech sector bubble burst.
This trend could be driven by 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 pushing investors away from high-risk tech stocks, and potential reallocation of funds to safer or undervalued sectors amid recession concerns.