Are they tired of tech?

I suppose it depends on who “they” are and also what you mean by “tech.”

Recall that “long Magnificent 7” retained the top spot on the “most crowded trade” list in BofA’s Global Fund Manager survey last month, albeit by a slimmer margin than previously.

As the figure above reminds you, “long big-tech” has had a very long run atop the “crowded” list.

There’s a reason those stocks are popular. Several reasons, actually. Their products and services were synonymous with daily life for a meaningful share of the global population even before the advent of generative AI. Also, they’re monopolies. Allegedly. I don’t want to say “Yay, monopolies!” but if I have a choice between investing in a monopoly and a company that isn’t a monopoly, I’ll generally take the monopoly because… well, because if you can get away with it, the monopoly business is a good one.

Anyway, now that a soft landing appears to be within the Fed’s reach, one narrative says it’s time to pivot away from defensives, bond proxies, low vol shares and so on, in favor of cyclicals, or at least quality cyclicals. This gets pretty convoluted, pretty fast depending on whose characterization of the vaunted “Magnificent 7” you buy. Some folks will tell you America’s mighty mega-caps are safe havens given their quality characteristics (strong balance sheets, etc), while others will argue they’re cyclicals in disguise just waiting to be “exposed.”

They’re certainly quality names. If they’re cyclicals too, maybe there’s never been a better time to own them. I have no idea, frankly. I know I own plenty — and so do you — through index funds, and the point here isn’t to weigh in on how to “correctly” categorize the group. Rather, my point is simply to highlight the chart below, from Goldman’s prime desk.

According to the bank, hedge funds sold the stupendous septet for a ninth straight week, taking nets down to ~17-month lows versus overall US equity positioning.

This comes ahead of earnings season, which kicks off Friday. Strategists have long billed Q3 and Q4 as an inflection point beyond which profit growth for “the rest” of corporate America has a chance to catch up. Trimmed longs in the Magnificent 7 may reflect those expectations.

On Thursday, Bloomberg quoted IB’s Steve Sosnick who said investors have yearned for an opportunity to broaden their horizons beyond the handful of names that’ve played Atlas to the rally. “Call it the revenge of the other 493,” he said.