The Tech Sector Just Saw The Largest Outflow In Two Months, Is It Time For Investors To Panic?

With the recent signs of a potential downturn in the U.S. stock market, voices of "the U.S. stock is going down" are back to alive once again. Therefore, for US stock investors, is now really the time to "pack up and run"?

 

Michael Hartnett, a strategist at Bank of America, recently stated that the tech sector has formed a small bubble similar to the 1999 "dot-com bubble" after its strong rise in the previous period. In a report, Bank of America stated that the tech sector had seen an outflow of $2 billion over the five trading days from June 15th to 21st, the largest scale in nearly two months.

 

Hartnett stated that although gradually increasing positions and strong investor enthusiasm will not prevent a new round of stock market gains, the likelihood of a stock market downturn this summer will be greater than the possibility of a rise. His team believes that the maximum increase space for the S&P 500 index before the US Labor Day is 100-150 points, equivalent to a maximum increase of about 3.5%; while the maximum decline space can reach 300 points, equivalent to a decrease of about 7%.

 

Similarly, Chris Harvey, head of stock strategy at Wells Fargo Securities, expressed the same view this week. Harvey also pointed out that the current market is similar to the "dot-com boom" from 1999 to 2000, which was eventually ended by a tightening monetary policy.

 

These strategists' pessimistic expectations for the future are not unreasonable: At a recent hearing of the US Senate, Federal Reserve Chairman Jerome Powell once again emphasized that suspending rate hikes is only a "temporary measure", suggesting the rate hike cycle has not ended and monetary decisions will be "made based on all received data at each meeting." As investors begin to digest the Fed's expectations for monetary policy led by Powell, the US stock market also stopped its previous rise last Friday: All three major US stock indexes fell to varying degrees.

However, not everyone thinks that the "prosperity" of US stocks has gone far. Jeremy Siegel, a professor at the Wharton School of Business, stated that he does not think that this investment boom led by tech stocks is a bubble. "Long term I would say that they were probably slightly overvalued. But for the short term, we know momentum can carry stocks far higher than their fundamental value and no one can predict how high they might go."

 

Comparing it with the internet bubble of the 1990s, Siegel pointed out that at that time, there were "tremendous valuations from companies that had no earnings." However, in the recent surge in stocks, there are "real, good companies" with "amazing" profits, such as Nvidia.

 

Although the Nasdaq 100 index fell by 1% last Friday, it has risen by 38% since the beginning of the year, the best half-year performance since the second half of 1999. It is worth noting that since the banking crisis in March this year, there have been numerous attempts of shorting US stocks, but the stock market has given a strong response through its own performance - according to data from S3 Partners, short sellers of US stocks have suffered losses of approximately $120 billion in market value this year, of which shorts lost $72 billion in the first half of June alone.

 

It seems that only time will tell the specific trend of US stocks in the future.