Wealth Manager: Big Tech Stocks 'Grossly Disconnected From Reality'

The Nasdaq composite was up another 1.8% to new highs on Wednesday as the rally in tech stocks continued. Investors are seemingly pricing in a pandemic recovery at some point down the line, but one money manager said Tuesday the next stage of the market cycle could usher in a major rotation out of tech stocks.

David Bahnsen, CIO of the Bahnsen Group, said Wednesday that large-cap tech stocks, particularly Facebook, Inc. FB, Amazon.com, Inc. AMZN, Apple, Inc. AAPL, Microsoft Corporation MSFT and Alphabet, Inc. GOOG GOOGL are overdue for a pullback.

“While the big 5 large cap tech stocks are grossly disconnected from reality in their valuation, picking the timing of an inevitable air out of tires moment is impossible,” Bahnsen said.

Leadership Change: When investors start selling big tech stocks, Bahnsen said cash will likely rotate into more distressed sectors of the market, including financials, energy stocks and REITs.

“I'm not necessarily talking about airlines and hotels, but sectors that are down almost as much,” he said.

Gold prices have been on fire so far in 2020, but Bahnsen said investors shouldn’t leap to conclusions about what’s driving gold prices and where they could be headed next.

“One has to experience the lack of correlation gold has to equities, to the Fed, to the economy, and even to the dollar, to really appreciate how untrue most of what they’ve been told drives gold prices really is,” he said.

Finally, Bahnsen said recent stock market strength is probably largely responsible for the lack of urgency in Washington over another economic stimulus package.

Benzinga’s Take: In the past five years, the price-to-sales ratios of Microsoft, Apple and Amazon are up 173.4%, 142.6% and 91.7%, respectively. However, Alphabet’s PS ratio is down 3.5% in that time and Facebook’s has fallen 43.9% from where it was in 2015.

Related Links:

4 Reasons There's A Disconnect Between The Red Hot Stock Market And Ice Cold Economy

Trump Suggests Capital Gains Tax Cut: What Investors Need To Know