There are early signs of investors fleeing from tech stocks after a stunning rally powered by the buzz around artificial intelligence has formed the so-called “baby bubble” in the market, Bank of America’s currency strategist Michael Hartnett noted.
This phenomenon with a massive outflow as a hallmark was first recorded in 1999, according to Bloomberg. A similar surge in activity was marked in the five trading days through June 21, 2023. During that period, the tech sector saw a $2 billion outflow, the largest in 10 weeks. EPFR Global data showed that investors exited with the Nasdaq 100 Index, which had added 38% over the year.
Between June 26 and 30, the market stalled as investors digested Fed Chair Jerome Powell’s speech. Earlier, the head of the US central bank said that more interest rate increases might be needed in 2023.
In Hartnett’s view, crowded positioning and current investor sentiment do not hold the market back. Nevertheless, there is a high likelihood of a downside movement, while further gains in stocks are in question, the analyst added. At the same time, the bank sees the S&P 500 index rising by 100-150 points at most.
One of the currency strategists at Wells Fargo Securities is of the same opinion. According to him, the market now resembles the tech boom of 1999 and 2000, which lasted until the Fed’s tighter monetary policy had roiled the security market.
