Hedge fund selling of tech stocks has limited potential for crash, JPMorgan says

By Louis Goss

The move by hedge funds to dump technology stocks in June has reduced the potential for a sharp overall correction in equity markets, JPMorgan says.

In June, hedge funds sold more technology, media, and telecoms (TMT) stocks than in any other month since records began in 2016, according to an earlier report from Goldman Sachs.

JPMorgan has now said the June sell-off of tech stocks has made markets less susceptible to a possible crash.

"We don't think there are clear signs of euphoria that would lead to a sharp correction, absent a more negative turn in macro and micro data," JPMorgan said

"With the set-up appearing quite similar to late March, another April-like decline at some point in the next few months seems reasonable," the investment bank added.

JPMorgan explained that the tech sector is currently being "propped up" by strong retail and exchange traded fund buying, which is acting as a counter-weight to hedge funds exits.

In late June, this buying by retail investors saw combined flows into the tech sector hit a multi-year high, even as hedge funds piled out.

Hedge funds' sell-off in June was, meanwhile, largely focused on semiconductor companies, in the wake of a similar sell-off of software companies in May.

Morgan Stanley put the June TMT sector sell-off in the context of a wider turn away from perceived AI beneficiaries.

In June, the pile out of semiconductor companies also contributed to hedge funds carrying out a net sale of Asia ex-Japan stocks, as they dropped shares in Taiwanese semiconductor companies.

-Louis Goss

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07-03-24 0826ET

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