Tech Sector is Crowded
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Technology was the only positive sector in September. Without it, the index would have fallen 6%. Yet as the SPX and QQQ hit record highs, the median stock is down 17% from the highs.
That’s what narrow breadth looks like: extremely few individual stocks participating in the index move. And yet the index keeps rising, driven by only a handful of heavily weighted, mega-cap stocks.
What caused this? As we explained here, interest rates rose sharply as the market adjusted its outlook for more Fed hikes. Investors fled to the stocks that historically were resilient to interest rates, which happened to be mostly tech: Mag 7, AI, and chip stocks.
As a result, these stocks are heavily crowded:
If rising rates drove capital out of rate-sensitives and into tech, then logically, falling rates should reverse the rotation. The OpenAI “revenue miss” provided the catalyst to unwind some of this crowded positioning:
To reiterate, lower yields could mean Nasdaq, chips, and Mag 7 decline while breadth rebounds from extremely oversold conditions. Conversely, the equal-weight SPX and Russell 2000 small caps (representing non-tech stocks) are bouncing off their 200-day moving averages and forming reversal patterns.
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