A $442 Billion Money Manager Says Tech's Glory Days Are Over
Not that there’s a blanket of doom and gloom over the entire sector, though. Some pockets tend to be more stable
(Bloomberg) -- Calling a top in technology stocks isn’t for the squeamish, but that’s just what one brave investment manager is doing.
That poses a dilemma for the stock market, says Principal Global Investors’ Seema Shah. Tech has juiced the bull market over the past decade, and a world without the sector’s undying strength is a grim one to picture.
“If you’re worried about tech, and you can’t see any other leader coming through, then how can you be positive about U.S. equity markets as well?” Shah, whose firm manages $442 billion, said in an interview at Bloomberg’s New York headquarters.
Technology stocks have been indispensable to the equity market’s longest bull run ever. The sector is up more than 500% since the 2009 bottom, and the group of six companies often associated with acronyms FAANG or FAAMG have accounted for roughly a fifth of the S&P 500’s rally. Now the market darlings have been hit with a one-two punch in the arenas of trade and regulation, throwing their role as market leaders into doubt.
Semiconductor companies and tech hardware firms get a significant amount of their sales from China, pinpointing them as ground zero in the U.S.-China trade war. Plus, the recent move from the Trump administration to blacklist Huawei Technologies Co. has strategists across Wall Street describing the current environment as a tech war. Add in U.S. antitrust probes hovering over some of the tech mega-caps, and it’s a recipe for trouble.
“You have to be very, very brave to call the top for the tech sector,” said Shah, a senior global investment strategist. “The great times for technology are probably behind us now.”
The S&P 500 technology sector fell 8.9% in May, its worst month since 2008. While the group was up 0.9% as of 11:55 a.m. in New York Wednesday, tech stocks are still roughly 7% from a record high set in April. So far this week, Facebook Inc. and Google parent Alphabet Inc. have both fallen more than 5% in the face of regulatory concerns. While neither company actually classifies as an S&P 500 tech company, they’re often associated with the club.
Not that there’s a blanket of doom and gloom over the entire sector, though. Some pockets, like software security companies, tend to be more stable and could continue to provide healthy returns, according to Shah. But overall, Principal Global Investors is advising clients to shift their equity holdings to a more defensive posture.
Within sectors, Shah recommends utilities or real estate. Since the start of May, the two classic bond proxies are the only S&P 500 sectors in the green. Globally, she prefers U.S. stocks over emerging markets. While the American benchmark fell 6.6% in May, the MSCI Emerging Markets Index dropped 7.5%. The idea is to keep risk exposure, but up the onus on quality just in case the bad news falls away, she said.
“We don’t expect there to be a recession, but we think there is a slowdown ahead,” said Shah. “The best way to do it is you need to stay in risk, but be more defensively positioned for that slowdown.”
To contact the reporter on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Randall Jensen, Brendan Walsh
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