It took Donald Trump for investors to realize they were too much in love with technology.
Not even record Singles' Day sales volume could catch the falling knife of fading infatuation for Alibaba Group Holding Ltd. and its brethren.
Add to that the terrible October revenue at Apple Inc. suppliers Hon Hai Precision Industry Co. and Pegatron Inc., showing that iPhone sales aren't as robust as some had hoped, and you get a doomsday narrative that the world of tech is falling apart.
The reality is that investors have been treating technology like a defensive sector in an era of deflationary expectations. Over the past two years, it's been tracking consumer staples like a shadow.
Even as money started rotating out of defensives around August, tech held its allure, despite warning signs that included weakness in China and Apple on track for its first sales decline in 15 years.
The election of Trump, widely expected to be a bridge-and-tunnel president for his focus on infrastructure spending (not his commute), suddenly made financials the darlings of global stock markets. His presidency, says the current wisdom, will nudge inflation and interest rates higher, benefiting banks that are set to reap the added bonus of a rollback of restrictive Dodd-Frank rules.
To buy financials, fund managers need to get their money from somewhere, and overweight holdings of tech stocks have suddenly become the piggybank of choice. Those with an overseas focus were especially ripe for picking, given the belief that Trump will be bad for global trade. The Bloomberg U.S.-China Index took a particular beating, with Thursday's 3.7 percent decline being the biggest since February.
That brings us back to Alibaba. The Chinese e-commerce giant trumpeted a 32 percent increase in gross merchandise volume to post $17.8 billion of sales on its platforms in the annual Nov. 11 sale, despite playing down what we've argued is the world's most useless financial metric. While that's a truly staggering figure, growth is half the pace of the year before and does not directly represent either revenue or profit at Alibaba.
In the past six months, those facts wouldn't have mattered: Alibaba, like Baidu Inc. and Tencent Holdings Ltd., was a Chinese internet play; those companies were hot property. Consecutive quarters of falling net income (Alibaba) or an existential threat to its business model (Baidu) weren't enough to stifle investors' passion. Even Apple shares have remained robust, despite all the signs that iPhones are losing some of their sparkle.
Then came Trump. Suddenly, compared with the upside potential of financials, tech stocks demand closer examination.
One investment bearing the brunt is Powershares QQQ Trust Series 1, an ETF that tracks the tech-heavy Nasdaq 100 index, with Apple accounting for 10.6 percent of its holdings. More than $1.8 billion exited the fund in the past week -- the most among 1,549 U.S. ETFs tracked by Bloomberg -- and Bloomberg's Social Velocity index showed six times more social-media postings about the ETF in the days following the election than normal.
By contrast, the SPDR S&P 500, which has banks as its top industry group, enjoyed $11.5 billion of inflows in the past week, topping the same chart. The iShares Russell 2000 (bank- and REIT-heavy) and the Financial Select Sector SPDR rounded out the top three.
Speaking against the tide, Mohamed El-Erian, Allianz SE’s chief economic adviser and a Bloomberg View contributor, told Fox News Channel on Sunday to "look at laggards -- mainly technology" for additional gains after last week's S&P rally.
The decision for fund managers, then, will be whether to keep piling into financials or give tech a second chance. That dilemma should be good news for stock pickers and those who believe they can outsmart their benchmarks.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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