📖 Your Q2 Earnings Guide: Discover the Stocks ProPicks AI Highlights to Jump Post-EarningsRead more

Wells Fargo tells its clients to reduce exposure to 'overvalued' tech stocks

Published 06/21/2024, 06:37 AM
© Pavlo Gonchar / SOPA Images/Sipa via Reuters Connect

Wells Fargo believes investors should reduce their exposure to “overvalued” technology stocks.

The investment bank points to the narrow breadth of the current market rally, driven largely by a small number of big-cap tech and communication services companies.

According to its analysts, just a few tech giants are responsible for most of the S&P 500 Index's gains this year. Data from Bloomberg shows that the top five contributors to the index’s return accounted for nearly 58% of its gain through May 31, 2024.

“That means the remaining 498 companies (there are 503 companies currently in the SPX) contributed slightly more than 42% to the overall return,” Wells Fargo highlighted.

“The average return of the top five has been 40.8% while the rest of the index members averaged less than 5%. Clearly, the rally this year has been very narrow,” it added.

Wells Fargo also noted the disparity in performance between different market indices. For instance, the Russell 2000 Index of small-capitalization companies significantly underperformed the S&P 500 Index through May. Specifically, the small-cap index rose 2.1% during this period, compared to the S&P 500’s gains of 10.6%.

In addition, only 36 out of 124 sub-industry groups within the S&P 500 have outperformed the index year-to-date, further underlining the limited breadth of the market rally.

“The bottom line is, from a market-breadth standpoint, an analysis of the performance data through May shows a narrow array of stocks driving the SPX to new record highs,” the note states.

“As the economy slows, our preference is to trim the overvalued Tech and Communication Services sectors and replace with undervalued Industrials, Energy, Materials, and Health Care sectors.”

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.