A recent survey run by the Bank of America asked respondents what the most crowded trade in November is? It also compares the responses with the ones in October.
Yet again, the U.S. technology sector leads the way. While investors reduced their exposure when compared to the previous month, the difference to the second place remains staggering.
Following the U.S. elections, the vaccine news hit the wires. Every Monday in November, the market was hit with positive vaccine news from Pfizer, Moderna, And AstraZeneca, in this order. The Nasdaq 100 index, the one that represents the technology sector, did not take the news particularly well. In comparison, the Dow Jones and the S&P 500 made new all-time highs.
The explanation comes from the fact that the technology sector benefited the most from the lockdowns and the changes brought in by the pandemic. Big names like Amazon, Microsoft, Netflix, or Zoom, were investors’ darlings.
And then again – who wants to be in such a crowded trade?
Think Outside the Box
One of the unwritten rules of investing and trading, in general, is to avoid crowds behavior. Or to think outside the box. After all, rarely is everyone right. Right?
This is one of the reasons for why investment firms ran surveys like this. No one can tell for sure if the answers are accurate, but they do offer an idea close to reality.
If the technology sector is a major bubble waiting to pop, time will tell. But at such elevated valuation levels and with so many investors on the same trade, it is easy to understand the arguments in favor of a bubble.
Long Bitcoin, on the other hand, is not that crowded. In fact, when compared to the tech sector, Bitcoin seems nowhere near a bubble. However, it did advance more than 300% this year, with the bulk of the moves taking place in November.
The two trades mentioned so far are not the most surprising ones. After all, these trades were the most visible throughout the year.
However, shorting banks is an interesting one. Yes, banks have suffered and continue to suffer due to the pandemic. They take losses and thus put aside provisions for more to write down in the months ahead. Yet, the central banks support the banking sector. Positive vaccine news triggered a jump in the banking sector. Also, consolidations will likely dominate as strong players will aim at buying smaller ones.
As always, the investor has a variety of opinions. Which one of the trades listed above will end up being the most profitable a year from now?