A wave of caution is hitting Wall Street as major players rapidly retreat from the high-flying tech sector. According to data from Bank of America, hedge funds are dumping tech stocks at the fastest pace since July 2023, raising questions about the sustainability of the AI-driven market rally.
The sell-off prompted a notable warning from Ed Yardeni, a data-driven Wall Street strategist. He pointed out that the S&P 500 is now trading 13% above its 200-day moving average—a level that has historically signaled extreme overbought conditions. Based on this, Yardeni forecasts a potential technical correction of up to 5% before the end of the year.
Amid the pullback, the Nasdaq led the declines among the three major U.S. indices. Yet, not all experts see the high valuations as a reason to panic. Luke Lango, a technical expert at Innovation Investor, offered a counter-narrative using historical data: since 1990, whenever the S&P 500’s forward P/E ratio exceeded 25, the index delivered above-average returns over the following 3, 6, and 12 months. “A 10% pullback in the next year wouldn’t be surprising, but it shouldn’t be a reason to exit the market,” Lango noted.
The divergence in strategy is also evident among top investors. Louis Navellier, a well-known quantitative investor, has built a long-term position in quantum computing firm Rigetti Computing (RGTI), which surged 213%. However, its high volatility underscores the critical difference between holding for growth and trading for short-term gains. In a striking example, trading specialist Jonathan Rose capitalized on the same stock, securing a 233% profit within just four days.
Despite weakening technical signals, Tom Lee, Head of Research at Fundstrat Global Advisors, highlighted a telling sentiment dynamic. He described the current rebound as “the most questioned V-shaped recovery,” noting that the S&P 500 has climbed 13% this year while many investors remain stuck in a bearish mindset. Historically, bull markets tend to end in widespread euphoria—not amid prevailing skepticism. In Lee’s view, this very doubt may be providing the market with hidden momentum.
