Morgan Stanley: “Short Growth, Short Momentum, Short the NDX, Short the SPX”

via zerohedge:

Many investors have said ‘it’s different this time’ about Tech stocks over the last few years, and so far they’ve been right – despite numerous warning signs of Tech, growth, and momentum being crowded, these stocks have continued to go up and dips have meant to be bought.  Looking over the last 5 years, selloffs like that seen over Thurs/Fri last week (-2.8 sigma event) have been a good signal to buy Tech, momo, etc.  But it’s likely different this time.

First off, MS Research lays out the case why Tech and growth are at risk – these stocks have not derated with the broader market and look rich relative to future expected earnings growth.

There is also the well discussed crowding in Tech.  The crowding hasn’t mattered so far as there has not been a fundamental catalyst to unhinge it, but recent Tech earnings may well be that catalyst.  You can’t have a >$100bn loss in a well held name and not have collateral damage.  A coarse estimate of the performance of HF longs based on 13F holdings shows the last few weeks have been a ~2 standard deviation loss event, and more actively held Tech stocks vs more passively held Tech stocks suffered a 3 sigma drawdown last week.

While many times big losses have preceded bouncebacks, note that in Aug 2011, April 2014, Feb 2016 the pain got worse before it got better.  While some derisking has occurred already this summer, there easily could be more to come.

The risk to the broader market of any Tech weakness is high as well.  Tech accounted for 65% of the S&P 500’s gain YTD going into last week (55% now), near the post Tech-bubble highs and an unsustainable pace (Tech’s weight in the S&P 500 is ~26%, also a post Tech bubble high).

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