Everybody loves a sequel, right?
Well, individual investors — those roller coaster gamblers who drove the crazy meme stock phenomenon and rode the bull market to record retail winnings on Wall Street — are coming back around to tech stocks, the engine of the bull market that ran into a matador of bad economic news this year.
Sharpening Their FAANGs
The Nasdaq Composite Index, the place Silicon Valley’s big tech stocks call home, is down 22% this year and each one of the FAANGs (Facebook-owner Meta, Amazon, Apple, Netflix, Google-owner Alphabet) has lost more than 10% of its bite.
But many tech stocks have started to turn the corner, even as Alphabet, Amazon, and Apple have suggested their growth is slowing down. Individual investors are returning amid hopes that these companies are undervalued and that the Federal Reserve’s campaign of interest-rate hikes could slow in the coming months, taking some of the pressure off markets:
- Individual investor purchases of popular tech stocks including the FAANGs reached the highest level since 2014 in late July, according to Vanda Research data reviewed by The Wall Street Journal. After Meta reported its first revenue decline Thursday and its share price fell 5.2%, the stock was the number one buy for individual investors on brokerage Fidelity brokerage.
- The Nasdaq was up 12% in July, its best performance since April 2020 and better than the 9% gain on the S&P 500.
Hedging Their Bets: Hedge funds, meanwhile, are hedging the opposite way. According to Jefferies data, this year hedge funds in aggregate have cut the percentage of their portfolios invested in a basket of 16 major tech stocks including the FAANGs from 24% to 16%. They’ve also cut Big Tech’s weight in their portfolio 10% below their weight in the S&P 500, meaning they expect more growth to come from other sectors.
Risk Appetite: Leveraged exchange-traded funds that track tech are the third and fourth most popular ETFs among individual investors in 2022, behind only S&P 500 and Nasdaq indexes, according to the WSJ. Let’s hope their appetite for the high-growth tech of old yields more feast than famine.