Tech names including Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Microsoft Corp (NASDAQ:MSFT), Google-parent Alphabet Inc (NASDAQ:GOOGL) and Amazon.com (NASDAQ:AMZN) were falling again Monday as last week’s stunning victory in the U.S. presidential election by Donald Trump continues to negatively impact the sector, while favoring financials, cyclicals, and commodities.
According to a research note by Morgan Stanley’s (NYSE:MS) Adam Parker, the decline in the past several sessions in mega-cap tech stocks is just a part of the overall clearing out of a “crowded trade”. Continuing with this line of thinking, Parker notes that the downside in large-cap tech stocks “where hedge fund clients were broadly overweight appear to have been viewed as “safe” and are being used as a source of funds for the rotation into financials, health care and industrials, where investors were not positioned.”
Parker also said that “Apple, Alphabet, Microsoft, and Amazon are among the 10 worst performing mega-caps relative to what [MS] model would have expected given broader macro moves.” Morgan Stanley’s strategist added they are underweight technology, “viewing the crowding as an issue and concerned about the ability of the group to expand margins, an important element of multiple expansion in tech stocks.”
From a trading standpoint, while traders and investors do not appreciate looming uncertainty, the fact is the group is now oversold with many widely held names dropping below their 200-day MAs. If the current bearish sentiment will dissipate, which it should given the group’s price drop reflects pure sentiment as opposed to fundamentals, these levels will eventually trigger strong bounces and even prompt short-term 100% V-shaped recoveries.