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Slump for tech stocks could open the door for tactical trades in fourth quarter, investors say
The tech trade lost some of its steam over the summer, and that could create opportunities for tactical trading in the fourth quarter, several investors told CNBC. The Nasdaq Composite rose 2.6% during the third quarter, lagging behind both the broader S & P 500 ‘s gain of 5.5% and the small Russell 2000’s jump of 8.9%. Nvidia and Microsoft , two stalwarts of the artificial intelligence trade, were down over the three-month period. NVDA 6M mountain Shares of Nvidia fell in the third quarter even as the broader market moved higher. Still, many investors are cautious of abandoning the tech trade completely even after a few bumpy months. “In the third quarter we definitely saw that rotation and some of the tech leaders lagging. In the month of September alone, though, it kind of reversed a bit. … I think that particular rotation out of the big momentum stocks maybe didn’t finish the quarter as strongly as it started,” said James Ragan, director of wealth management at DA Davidson. The slowing momentum could be an opportunity for investors to take a closer look at how exposed their portfolios are to the so-called Magnificent 7 stocks. Even after the recent slump, those stocks still account for about 31% of the S & P 500, and even more in many funds focused on tech or growth. “We’re not saying don’t own the Mag 7, we’re saying temper your exposure to the Mag 7. It doesn’t need to be 30-plus percent upfront. … There are other growth stories than the Mag 7,” said Frank Tedesco, an analyst at Astoria Portfolio Advisors. One way to reduce exposure to those names would be to use funds that cap the weight of individual stocks, or make the weights equal across the portfolio, to reduce dependence on any one name. That idea worked well in the third quarter, as the Invesco S & P 500 Equal Weight ETF (RSP) gained 9.1%, outperforming all the major averages. RSP 6M mountain This equal weight version of the S & P 500 outperformed the regular S & P 500, the Nasdaq Composite and the Dow Jones Industrial Average in the third quarter. Astoria has a new product in a similar vein, launching the U.S. Quality Growth Kings ETF (GQQQ) last week with no one stock accounting for more than 5% of the fund. Investors could also sell some of their top performers and try to find better value elsewhere heading into the earnings season and the end of the year, Ragan said. “For the most part, the tech sector is expected to put up pretty good earnings growth when numbers start to come in. So we could still see a bit of a rally based on that. But our message, based on what we believe now, would still be to take some profits in some of those names and continue to spread the risk out a little bit more,” Ragan said. On the other hand, Jason Browne, president of Alexis Investment Partners, says his firm is looking to add tech exposure after taking some of that risk off the table ahead of the summer. “We’ve been buying into technology though in each of the successive pullbacks that we’ve had over the past three months. … We were adding to a variety of different things, but we absolutely made sure that Big Tech was a big piece of it. It had been hit disproportionately. The uptrends are still very much intact, from our perspective,” Browne said. His Alexis Practical ETF (LEXI) is up about 15% for the year.
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