Tech stocks suffer $5 billion in liquidations according to Bank of America

Source: CritpoTendencia Original Title: Technology stocks suffered $5 billion in sell-offs, according to BofA Original Link: Technology stocks experienced one of the worst downturns in recent days, causing a significant drop in the S&P 500 during Tuesday's session on the U.S. stock market. This collapse comes amid growing fears of a correction in the tech sector, fueled by the valuations of Palantir and AMD.

Both companies reported quarterly results that exceeded market expectations. However, valuations reached such high levels that large institutional portfolios began to reduce exposure. Essentially, hedge funds believe that the rise of the technology sector is well above its true value, which could lead to a large-scale correction.

Bank of America reported that just last week, up to $5 billion in individual technology stocks were liquidated. The report indicates that this is the largest sale in this sector since July 2023. These massive liquidations were reflected this week, especially in the 1% decline of the S&P 500 recorded on Tuesday.

In the last 24 hours, there is a clear risk aversion, as concerns over the high valuations of technology companies have affected investor sentiment, commented Jim Reid, strategist at Deutsche Bank.

Do tech stocks diverge from the S&P 500?

During the course of this Wednesday, the benchmark index showed a moderate partial recovery. At the time of writing this note, the S&P 500 recorded a gain of +0.35%, while the Nasdaq rose +0.55%. However, the fear of high valuations in the technology sector persists.

Although the fluctuations were limited to a single day of declines, the market outlook experienced a noticeable shift, with a growing number of voices questioning whether we could be on the verge of a stock market correction, Reid pointed out. He added that these speculations have been gaining strength since last month.

The analyst explained that the Magnificent 7 have decoupled from the rest of the S&P 500, which reignites questions about the level of concentration that currently exists in the market. In fact, while the Mag 7 have advanced in recent weeks, the equally weighted S&P 500 fell in October for the first time in six months, he warned.

As the SPX tries to recover this Wednesday, high valuations continue to weigh on investor sentiment. AMD's latest quarterly report reinforces this trend, suggesting that tech stocks may register new pullbacks in the coming trading days.