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Big-Tech Battering Continues After Rare “Sell” Rating

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After its (now dead-cat-bounce) resurgence late last week, every asset-gatherer and and commission-raker was hawking the idea that big-tech is back baby and BTFD is the only way to play.

However, this morning’s price action tells a different story as Nasdaq leads the market lower once again and nears unchanged for 2021…

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The drop in the big-tech index comes after Ned Davis Research strategists finally pulled the trigger, cutting the group to the equivalent of a sell rating.

Strategists including Rob Anderson said Technology stocks, which have traded sideways since mid-February, are due to succumb to mounting inflation pressures. Since the early 1970s, the group has underperformed the S&P 500 by 3.6 percentage points annually whenever a CPI print posted a year-over-year jump of 3.9% or more. Data last week showed inflation spiked 4.2% over the 12 months through April.

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Another issue is valuations that remain stretched. Measures like price-to-forward-earnings or price-to-sales are at least one standard deviation above the long-term average relative to the S&P 500 — and at a time when this year’s growth in operating earnings is expected to come in at 35%, well below the S&P 500’s 52%, calculations by Ned Davis Research show.

“The ongoing recovery should continue to support Value over Growth sectors,” the firm’s strategists said in a note last week.

“High expectations,” particularly in stocks like Microsoft and Apple, “leave little room for missteps.”

As Bloomberg reports, “sell” recommendations on tech stocks aren’t particularly widespread on Wall Street. JPMorgan, UBS and Oppenheimer are overweight tech stocks in the S&P 500. Goldman Sachs continues to like tech megacaps, while Citigroup is overweight IT hardware and equipment firms and neutral on chips and semi equipment following a downgrade last month. Strategists at BMO, Morgan Stanley and Bank of America are neutral on the sector, while Jefferies’ Sean Darby, one of the biggest tech bears on Wall Street, is moderately bearish on tech, which is still one notch away from a bearish stance.