Thibault Camus, AP; Jeff Chiu, AP
Nvidia's blockbuster earnings report last week has been followed by big outflows from the tech sector among hedge funds as they look to take some chips off the table after piling in ahead of the chip maker's results.
A note to clients from Goldman Sachs' prime brokerage unit said hedge funds have been selling tech at the fastest pace in seven months after a six-week period of buying before Nvidia reported results last Wednesday.
"After a 6-week buying streak, HFs unloaded Tech stocks at the fastest pace in 7+ months, as the sector was net sold for 4 straight sessions incl. Thurs post NVDA results," the analysts wrote.
Nvidia sent investors into a frenzy with its earnings last Thursday, adding $267 billion in market cap, good for the biggest-ever addition to market value in a single trading session.
"Despite the 'good vibes' last week and strong NVDA earnings on Wed, the NDX has traded lower 4 of the last 5 sessions, as price action and activity levels have started to show some more 2-way action to it, raising some tension about the sustainability of momentum from here," Peter Callahan, tech, media, and telecom sector specialist, wrote in the note.
Hedge fund investors have shifted their focus to other high-quality stocks, with cash redirected from the tech trade to real estate, consumer staples, and materials, the note said.
The analysts said that as the Magnificent Seven wrapped up their earnings season, their performance should begin to yield to broader economic indicators such as inflation data, as well as shifts in the Fed's rate-cutting timelines.
That said, market confidence in tech stocks remains robust, with Nvidia alone driving 22% of the S&P 500's weekly gain last week. The put-call skew, a key measure of investor fear, was down, while retail trading in Nvidia also surged to the 99.96th percentile in the one-week average notional amount traded over the last five years.
