Tech has been the undisputed leader of the rally over the last several months, but there might be cracks in its armor that investors need to be aware of. Internal price momentum has started to fade in the sector, and it looks as though it might be ready to hand over leadership of the market. According to one equity analyst, “Relative performance has diverged on the sector’s new high, while semiconductors and small caps have failed to confirm as well”.
FINSUM: No one wants to hear this, but with valuations so high, it might well be true. The other big risk is regulation, but given good business momentum in the sector, there could still be some room to run.
There is no doubt about it, the FAANG stocks—Facebook, Apple, Amazon, Netflix, and Google—were a huge force is delivering 2017’s great return. But it might be time to remove them from your portfolio, at least as Barron’s argues it. And if not removing them, then at least reducing exposure. The stocks count for a huge portion of many funds, so investors may have more exposure than they realize. The stocks have seen a massive run-up in valuation, but that makes them look increasingly vulnerable. Barron’s also cites the increasing risk of regulation of the sector, which could prove a weight on values.
FINSUM: The tech industry has grown very large and dominant, and seems to have its own cycle versus the rest of the economy, all of which makes it very hard to call a top. There are some dark clouds gathering on the horizon, but nothing looks like it is imminently going to bring the FAANGs down.