Managers of more than half a trillion US dollars say tech stocks look expensive -- but they're still rising

SYDNEY — Just have a look at the chart below for an example of what a relentless bull market looks like.

It’s the Nasdaq 100, an index that tracks the performance of the 100 largest non-financial stocks listed on the Nasdaq index, encompassing the likes of tech heavyweights such as Apple, Amazon, Ebay and Google, among others.

It’s been on quite a run, adding over 466% from the depths of the Great Recession, or the Global Financial Crisis as it is known in Australia, back in late 2008.

It’s been a remarkable, relentless grind higher with even the smallest pullback brought by investors, as was the case last week.

That tongue-in-cheek tweet from a favourite Twitterer, @RampCampitalLLC, an account that riffs on the current trend in markets for stocks to just continuously lift. In this particular case it was in response to a drop of 4.5% in the index earlier this month.

That decline, as has been the case on countless occasions beforehand, has been subsequently bought. The index added 1.6% on Monday alone, led by a surge in Apple’s share price.

The relentless rally over the past nine years, has got some questioning what — if anything — could derail the rally.

The price action is undeniably bullish, but contrast that to the chart below from Bank of America-Merrill Lynch (BAML).

Source: BAML

It’s the bank’s latest survey of global fund managers for June, asking them how they see current valuations for US and global internet stocks.

Expensive is the most common answer by some margin at 57%, with “bubble like” taking out second spot at 18%.

Combined, they account for 75% responses, overshadowing the 15% who see current valuations as fair, or in the case of the remaining 1%, cheap.

What gives?

Why, if most think that they’re expensive or bubble like, does the Nasdaq continue to grind higher, seemingly setting fresh record highs each and every month?

This is only one survey, but those who participate managed a whole lot of money — some $596 billion to be precise.

It is an unusual situation, and one that suggests the rally may (and we emphasise that word) be running out of buyers should the views of these money mangers be reflected by the broader investment community.

Underscoring this, of those who were surveyed by BAML, 38% said being positioned “long Nasdaq” was currently the most “crowded trade”.

A crowded trade worries people in investment markets. If too many people take a particular position, the rush to the exits if things turn down has the potential to be a significant event.

If the index is deemed to be expensive or worse, and market positioning is viewed as being extremely one-sided, it does suggest there’s an increased risk that a correction or something more substantial may eventuate.

One for the contrarians, or perhaps those thinking of taking some cash off the table, to ponder.

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