Big tech stocks stand alone as other investments retreat

U.S. equities dribbled lower last week, plagued by a long list of concerns. Fears over a possible trade war on three continents and the prospect of more Fed interest rate hikes brought out the sellers. This is in keeping with what's been happening throughout the rest of the world, with stock prices down in emerging markets (on currency devaluation worries) and in Europe (amid the ongoing situation with the anti-establishment government in Italy). 

Emerging market stocks are trading at levels seen last summer. European equities are testing the lows seen during selloffs in February, March, and May. And despite rebounding last Friday, the Dow Jones Industrial Average posted an eight-day losing streak through Thursday, the worst string of losses since the 1970s. The Dow even lost its last original member last week: General Electric, booted after 111 years in the blue-chip index. 

One small subset stands alone, however: Large U.S. technology stocks -- names like Amazon (AMZN) and Apple (AAPL) -- steadfastly refuse any significant downside pressure. A bulwark amid the chaos. 

Demonstrating just how large the performance gap between the big-cap tech stocks and everything else has become, the Dow is now down -0.6 percent on a year-to-date basis while the Nasdaq is up 11.4 percent. That's the largest year-to-date divergence since 2009. 

Jason Goepfert at SentimenTrader notes that stocks aren't looking so great at the moment outside a handful of winners, especially when one considers overseas markets, which have been selling off to the point of exhaustion. But for now he gives the benefit of the doubt to the bulls. The U.S. economy looks strong. Earnings growth is strong. And after the Dow's long losing streak, history shows excellent returns going forward after similar circumstances during a bull market. 

Meantime, there's the buying up of big-tech stocks. According to Bank of America Merrill Lynch's latest weekly fund flow report, investor inflows into tech stocks is almost "off the chart" while money is yanked off the table pretty much everywhere else: $12.9 billion has been pulled out of equities globally, $5.9 billion out of bonds and $0.8 billion out of gold. 

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Amid the "panic" to get into U.S. tech stocks, $5.1 billion has flowed into U.S. equities while $5.1 billion has come out of emerging market stocks (the worst result for those stocks since November 2016), $2.7 billion has come out of Europe and $1.9 billion out of Japan. 

Other sector groups are caught up as well in the tech transfer, with financial stocks losing $1.4 billion in investor capital for the worst weekly outflow since September 2016. 

The Bank of America Merrill Lynch team recommends investors stay cautious, noting the performance of U.S. tech stocks "are the anomaly, but largely vulnerable to investor deleveraging." 

  • Anthony Mirhaydari

    Anthony Mirhaydari is founder of the Edge , an investment advisory newsletter, and Edge Pro, options newsletter. Previously, he was a markets columnist for MSN Money; a senior research analyst with Markman Capital Insight, a money management firm; and an analyst with Moss Adams focusing on the financial services industry.