For all of the talk about President Donald Trump and what’s happening in Washington, D.C., the market in 2017 has been defined by one sector: tech.
And according to data from Bank of America Merrill Lynch, money has moved into the sector at a rate that, if it keeps up, would mark the biggest inflows to the space in 15 years.
If you run down some of the market’s biggest winners this year, it shouldn’t come as a surprise that investors have been piling into tech stocks.
Year-to-date, Apple (AAPL) stock is up 32%, Amazon (AMZN) is up 28%, Netflix (NFLX) is up 26%, Alphabet (GOOGL) shares are up 20%, Facebook (FB) is up 27%, and Microsoft (MSFT) is up 9%. Add to this shares of chip powerhouse Nvidia (NVDA), which are up over 300% since the start of 2016 and 27% in 2017, and the big winners don’t fall far from the tech sector.
And looking at the major averages, so far this year the S&P 500 is up about 6%, the Dow is up 5%, with the tech-heavy Nasdaq outperforming, up 13% year-to-date.
There is, however, a chicken-and-egg relationship between the flows and performance — are strong flows following performance or is the strong flow of money into an asset creating that performance? The answer is sort of both.
And contrarians will note that the strong performance of tech not just this year but in recent years — each of these stocks have beaten the S&P 500 over the last five years — could lead to market-wide disappointment with so much money moving into a few winning stocks or sectors.
Bank of America writes that, “[the] longer it takes economy & yields to pick-up, greater risk of tech mania.” Implying that unless there are more durable economic trends for the market to respond to, investors in general risk becoming too beholden to a recent enthusiasm for tech-related investments.
And while markets have, by and large, discounted a lot of the headlines coming out of Washington, D.C., as we saw earlier this week, disorganization in the White House always looms as excuse to sell stocks.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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