Tech stocks have had a brutal few trading sessions, with Nvidia (NASDAQ:NVDA) down nearly 6% over the past 5 days. Although we are likely due for at least some short-term reprieve, I firmly believe the pain in tech has only just begun.
This is because I believe that we are entering a risk-off juncture.
As a result, the tech sector will remain far more vulnerable than other parts of the marketplace. When we zoom out and look at the tech sector relative to the S&P 500, it’s clear that the ratio between tech stocks’ performance and the broader market is only just now starting to turn. As a result, tech could potentially have a long period of weakness relative to other sectors.
I also believe that right now, we are just at the start of the downtrend in tech stocks. There is a TON of weakness still yet to come. This goes beyond disappointing earnings. It goes to the very core of the concentration bubble… and results in a big burst.
If Tech Stocks Are Dead… Where Do You Invest Next?
The question of course is, if tech’s time in the spotlight is over, which sector benefits next? I suspect healthcare stocks will become the next big relative winners.
Why? Because if we are headed for a broader period of risk-off dynamics in the months ahead, healthcare is a sector that acts somewhat like more defensive consumer staples and utilities stocks. It’s large enough to absorb scared sector capital. And it’s a part of the marketplace which is due for broader outperformance.
I think the tech pain is early. And if it is, the way to lessen that pain might be to reallocate to healthcare stocks as the potential cure.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
