Investors moved away from technology stocks in August as they sought refuge in defensive assets amid market volatility.
Many market indices saw sharp falls early last month, sparked by fears that the US is on track for a recession, before rebounding later in the month. The month proved particularly shaky for tech stocks, with investors rotating out of the highly rated Magnificent Seven following concerns around the sustainability of AI growth.
Fidelity International said that while tech-focused funds were at the forefront for its ISA and SIPP investors for much of the year, August saw a different picture emerge with investors moving towards more diversified and defensive assets.
Tom Stevenson, investment director at Fidelity International, said: “The tech sector has had a stellar run, but the past month has been rocky. Nvidia has become the single biggest influence on the stock market this year, with a high correlation between movements in its share price and that of the wider market and the value of the company fell by about $750bn in July and August before regaining all of that lost market capitalisation in a handful of trading days.
“We’re seeing a classic shift towards safety, as investors seeking stability looked to preserve capital amid market volatility. In this shift, money market funds have become very appealing once again.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, warned that the sector could suffer a further downturn amid mounting concern that the benefits of artificial intelligence powered products and services are not yet justifying the huge sums being poured into the technology.
“A sharper downturn for the mighty US economy may lead to more firms battening down the hatches and rethinking their capital expenditure plans in support of AI. This is causing a rethink about the scale of future revenue streams, knocking valuations,” said Streeter.
“Although clearly this tech juggernaut has much further to run, the speed at which it’s going to go is being questioned. The biggest wobble shook chip darling Nvidia, which had already disappointed by not shattering expectations by its last earnings report. The stock dived almost 10%, but is still up 124% year to date.”
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