Jun 22, 2023

US tech stocks have outperformed other countries this year, but there are concerns over the narrow nature of the rally.

NAS100: Daily Chart

NAS100: Daily Chart

The US tech-focused Nasdaq index has soared from 11,000 to 15,000 this year and is at risk of a correction.

The Nasdaq is on course to register its best six-month performance in 20 years, but seven of the largest companies are driving much of the gains on AI hype.

“The big tech stocks in the S&P now are in the same situation as oil companies were in the past or the Nifty 50 in the 1960s,” analyst Frédéric Leroux told the FT. “It’s a problem, but it’s a recurring problem.”

The performance of the S&P 500 is the narrowest it has been since the 1970s. Seven of the largest companies—Apple, Alphabet, Amazon, Nvidia, Tesla, and Meta—have surged between 40 and 80% this year, while the remaining 493 companies are flat.

Much of the gain in companies like Meta and Alphabet is based on the AI buzz, which has yet to show up in earnings. Apple, with a $2.9 trillion market cap, is worth more than all of the UK’s FTSE 100 companies.

“The danger is if you have gone all-in,” said Ed Cole at Man GLG. “For people caught up in Fomo who have gone all-in on this very narrow theme, if you discover there are competitors that can enter the marketplace, it does not take very much for your position to reverse quite meaningfully.”

Traders should note this disconnect and keep an eye on the charts for a potential high in the US stock market in the coming weeks or months.

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