Traders Fear ‘Peaked’ U.S. Tech Stocks Could Freeze 2020 Bull Market

The seemingly unstoppable tech stocks are coming to a screeching halt. Netflix is down 9% in after-hours trading, with Apple and Microsoft dropping just over 1%. Traders fear a slump of FAANG stocks could spoil the 2020 U.S. stock market bull run. Tech stocks have been leading the U.S. stock market rally in the past four months. Facebook, Netflix, and Amazon rallied by more than 75% since their correction in March. If tech stocks are at a peak, it could trigger a downtrend in the equities market.

The behemoth $2 trillion stimulus package introduced in March kickstarted a V-shape recovery in the stock market. The biggest beneficiary of the stock market uptrend has been tech stocks, specifically FAANG stocks, as consumer demand shifted to digital products. But traders are concerned that the rally is becoming overheated. Retail investors have fueled a FOMO-driven rally. In the months ahead, strategists are skeptical if there are sufficient fundamental factors to justify a larger uptrend.

In January 2020, CNBC reported that merely 17.5% of leading technology stocks account for 17.5% of the S&P 500. The market capitalization of Apple, Microsoft, Amazon, Facebook, and Alphabet has actually increased since, despite the March crash. If tech stocks undergo a steep downtrend, it could cause the ongoing stock market rally to slow down.

On June 19, JPMorgan strategists warned that investors have to become more selective with stocks. A broadly-positive sentiment around the stock market led all types of stocks to rally in Q2 2020. As the momentum of the rally weakens with “slight fatigue,” JPMorgan said an “indiscriminate approach” to investing could be less effective.

Investors are increasingly evaluating stocks on a case-by-case basis. For example, Tocqueville Asset Management’s portfolio manager John Petrides said the Netflix stock is no longer compelling. Whether the retail FOMO among traders on platforms like Robinhood and Charles Schwab would subside remains uncertain. But in recent weeks, investors have been watching tech stocks’ momentum with a skeptical eye.

Traders Fear ‘Peaked’ U.S. Tech Stocks Could Freeze 2020 Bull Market, CCN, Jul 17