Last week saw the big tech companies report their Q2 2020 earnings. All of them beat expectations by a mile, way ahead of analysts, and investor’s expectations.
Buying U.S. tech is the most crowded trade opportunity as of late, outpacing interest in utilities, consumer discretionary, energy, industrials, or financials. Does it still make sense to invest at such valuations?
How COVID-19 Impacted Investments
The coronavirus health crisis brought some interesting changes in the investment world. Funds flew out and in various sectors and assets.
The stock market is the one that witnessed the biggest rotation of funds. The sell-off in March created quick panic, but investors liquidated positions in other sectors only to rotate to the tech sector. Amazon, as reported last week, took the opportunity generated by more people shopping online and hired over 175,000 people since March.
The July Global Fund Manager Survey run by Bank of America reveals that not only the tech sector is very crowded. But long gold trade too. Also, long cash.
In other words, the three areas – tech, gold, cash – reflect perfectly how investors position during an economic recession and what the expectations are.
First, by being long tech companies, investors own large corporations that took over the world. Digitalization is a reality in the 21stcentury, and corporations like Microsoft, Amazon, or Google run global businesses. Therefore, it is a bet on the global tech evolution, not on the U.S. tech. The fact that the companies are listed in America is just a coincidence.
Second, the price of gold almost reached $2,000. It printed a new all-time high recently, with everyone jumping on the long side, to own some portion of the yellow metal. Gold stood the test of time, and it is the only form of money that survived for many centuries. It outperforms during recessionary times, and this is a recession like no other.
This time, everybody is in a recession – not a country or a region, but the entire world. Hence, owning gold is a safety net against a truly global recession. With central banks printing money to support households and economies, gold preserves the value of money. As simple as that.
Finally, long cash. This is just another recessionary consequence. Long cash means postponing consumption, investment, spending. High savings rates are seen everywhere in the world – something that will not change anytime soon unless the world finds a solution to the coronavirus pandemic.
Until then, no – these are not crowded trades, but logical ones.