Hedge Funds Flee Tech Stocks After Nvidia Earnings: 'Tensions About Sustainability Of Momentum,' Analyst Says

Hedge funds are unloading technology stocks, data from Goldman Sachs Group Inc.’s prime brokerage unit shows.

This shift away from tech investments unfolded both before and after Nvidia Corp.’s NVDA last earnings announcement. Hedge fund managers began to take profit from the sector’s rally.

This sell-off was particularly notable on Thursday, immediately following Nvidia’s earnings announcement. The scale of this exodus is significant. Goldman Sachs’ prime brokerage data revealed that the intensity of the selling spree landed in the 98th percentile compared to the past five years.

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There was also a spike in retail trading activity. Nvidia reached the 99.96th percentile in terms of average notional traded over the week, according to Goldman’s prime brokerage data.

Sustainability Concerns Arise: Goldman Sachs’ Peter Callahan expressed concerns over the sustainability of this momentum.

Despite the initial positive reactions to tech earnings, recent trading patterns and the performance of major tech firms post-earnings have introduced a sense of caution regarding future momentum, Callahan noted.

“Despite the good vibes last week, activity levels have started to show some more 2-way action to it,” he wrote.

Significant drops in stock prices for companies like Palo Alto Networks Inc. PANW, Rivian Automotive Inc. RIVN, Booking Holdings Inc. BOOK, MercadoLibre Inc. MELI, and Etsy Inc. ETSY indicate a market that is reassessing the value and growth prospects of tech stocks.

“In turn, this has raised some tension about the sustainability of momentum from here,” he added, signaling growing concerns over the market’s future direction.

Macroeconomic Indicators: The market’s attention is now shifting towards a slew of economic indicators and the anticipation of interest rate adjustments.

As tech earnings season concludes, Callahan anticipates a shift in focus toward macroeconomic indicators. This includes the Personal Consumption Expenditures (PCE) index, Super Tuesday events, Nonfarm Payrolls (NFPs), and the Consumer Price Index (CPI) over the next 20 days.

This transition occurs against a backdrop of increasing economic warmth, characterized by 10-year Treasury yields approaching year-to-date highs of approximately 4.3%, well above the 100-day moving average.

Furthermore, expectations for interest rate cuts are being recalibrated as inflation came in hotter-than-expected last month.

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