Tech stocks are ‘certainly in a bubble’ but that won’t deflate anytime soon, a chief strategist says

Skye Gould/Business Insider

  • Tech stocks sold off sharply last week but a chief strategist doesn’t think things will go much further south.
  • Jonathan Bell of Stanhope Capital, said: “I would be saying to people that this is a bubble-type territory, but it doesn’t mean that it is going to deflate now. 
  • All US stock indices closed lower on Friday for a consecutive session driven by the tech-sell off.
  • Bell said investors should trim holdings in big tech stocks and not be overly allocated. 
  • Visit Business Insider’s homepage for more stories.

Tech stocks are definitely in a bubble, based on the sizzling rally so far in 2020, but it will take a while to burst, a chief strategist said. 

Jonathan Bell, chief investment officer at Stanhope Capital told CNBC’s “Street Signs Europe” Monday: “I think we are certainly in bubble territory.” 

Bell’s comments come days after a sell-off in tech stocks that drove all US indices lower for two consecutive sessions on Friday. 

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On Thursday, US stocks fell the most in three months as investors sold high-flying tech stocks, causing the Nasdaq-100 to experience its sharpest decline since March, with a drop of 5.2%. 

But Bell thinks there are “so many good reasons” for investors to hold stocks in Alphabet, Amazon, Microsoft, Apple and Facebook and said their outperformance is something “everyone is talking about.” 

Stock market darling Apple has risen more than 200% in the last 12 months. It last closed just shy of $121 on Friday on US markets. 

Tesla, another favorite, has exploded higher by nearly 400% since the start of 2020. 

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But the world’s most valuable carmaker had an eventful last few days. It faced four days of straight losses partly due to the tech sell-off and also because Baillie Gifford, the company’s largest shareholder, said it had trimmed its stake due to internal rules constraining the weight of a single stock in client portfolios.

Stanhope Capital’s Bell said: “It’s not that these businesses aren’t great businesses that are going to carry on going, it is just the exuberance related to them.”

Bell likened the current tech bubble to comments made in 1996 by former Federal Reserve Chairman Alan Greenspan when the equity market, driven by gains in technology stocks, embarked on a rally that would culminate in early 2000 with the bursting of the so-called “dot-com bubble” . 

At the time Greenspan cautioned against “irrational exuberance” in financial markets. 

“I would be saying to people that this is a bubble-type territory, but it doesn’t mean that it is going to deflate now. What we have seen in the last week or so is only an unwinding of the rise of the previous two weeks.”

But he suggested that investors should avoid allocating too much of their portfolios to the tech sector. 

“There’s still a lot of reasons to own these, but be really careful, trim holdings … Look at the percentage weighting you’ve got,” Bell said. “If you’ve got 15% or 20% and you’re overweight those then be aware of that, but if you’ve got 30% or 40% of your portfolio in there, then that’s a really big risk you’re taking,” he added. 

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