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From: Julius Wong1/3/2024 8:19:39 AM
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Megacap rout in January is now consensus - BofA

Jan. 03, 2024 7:17 AM ET
By: Kim Khan, SA News Editor


A January "rout" in megacap tech stocks this month is now the Wall Street consensus, according to the BofA equity team.

The Magnificent 7 - Apple ( AAPL), Amazon ( AMZN), Alphabet ( GOOG) ( GOOGL), Meta ( META), Microsoft ( MSFT), Nvidia ( NVDA) and Tesla ( TSLA) - have seen exposure by long-only active funds reach "critical mass," BofA says.

"Crowding risk in the leaders of 2023 has been cited by many (including ourselves) as a key risk in 2024," strategist Savita Subramanian wrote in a note. "In particular, year-end 'window dressing' may have pushed active funds into big Tech leaders, but these stocks could be used as a source of funds if a hard landing is avoided and leadership broadens beyond secular growth stocks."

"Some of this theme has played out – the equal-weighted S&P 500 ( RSP) has handily outperformed the capweighted index ( SPY) ( IVV) ( VOO) since mid-November," Subramanian said. "We hear from our clients that a broadening of market leadership is now as consensus as the unwavering bond love / equity hatred we heard at the end of 2022. The January pain trade may thus be higher TMT/mega-caps."

The Nasdaq 100 ( NDX) (NASDAQ: QQQ) kicked off 2024 with a 1.7% decline. That's the third-worst performance to start the year since the dot-com bubble in 2001.

BofA also noted that short interest in the Magnificent 7 has risen since July.
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