By Callum Keown
A strong year-end rally lies ahead but investors should rotate within the tech sector and reduce their exposure to the “megacap” names, according to one strategist.
Miller Tabak’s chief market strategist Matt Maley said some rotation within the technology sector was a good idea for the rest of the year, most notably into chip stocks.
The asset manager stuck to its belief that a “strong year-end rally” was ahead, with history indicating markets tend to rally at the end of election years and the Federal Reserve ready to provide plenty of liquidity.
However, after the FAANG stocks — Facebook /zigman2/quotes/205064656/composite FB -0.48% , Apple /zigman2/quotes/202934861/composite AAPL +0.03% , Amazon /zigman2/quotes/210331248/composite AMZN +0.42% , Netflix /zigman2/quotes/202353025/composite NFLX +0.75% , and Google parent Alphabet /zigman2/quotes/205453964/composite GOOG +0.37% — rallied in election week, Maley said it was time for investors to reduce their exposure to the “megacap” names. While he recommended rotating into value, he said it wasn’t time for investors to abandon the tech sector altogether, in a note Saturday.
“There’s no question that it was a strong rally, but quite a few other tech stocks saw very nice gains as well. In fact, many of those “other” tech stocks have broken to new highs, while only one FAANG stock [Alphabet] did the same thing.”
Chip maker Micron /zigman2/quotes/205710729/composite MU -0.89% looked “very enticing” on a technical basis, he said, as it was testing its June and July highs after being hit in August. Its peers Nvidia /zigman2/quotes/200467500/composite NVDA +0.36% , Texas Instruments /zigman2/quotes/202237907/composite TXN -0.08% , AMD /zigman2/quotes/208144392/composite AMD +1.13% , and Taiwan Semiconductor /zigman2/quotes/204359850/composite TSM +1.71% also enjoyed breakouts last week, Maley noted.
“This does not mean that FAANG names cannot rally further in a year-end rally. However with other tech stocks making new highs…and with the “momentum-driven” strategies becoming so prevalent recently, we believe that a lot of that momentum money [will] no longer go into those small number of FAANG names. Instead it will be more spread out,” he said.
“In fact, we think more of that money will likely go to the names that are actually breaking to new all-time highs,” he added.
After strong gains last week, the markets finally had the first chance to react this week to a Biden win, which is according to the Associated Press and other media outlets, following days, and even months, of uncertainty.
But that wasn’t even investors’ main focus, however, as drugmaker Pfizer and biotechnology company BioNTech said their vaccine candidate was more than 90% effective in preventing COVID-19., sending stocks surging on Monday.