The Nasdaq may just begin to plunge.
Fundstrat Global Advisors’ Tom Lee sees a major market shift afoot with Big Tech starting to significantly outperform economically sensitive stocks.
So he urges investors to double their businesses in the epicenter, which are positioned to benefit as the economy reopens.
“Many of these businesses that have closed, be they industrial or energy companies or the travel or cruise industries, have really cut costs,” the company’s co-founder and chief researcher told CNBC’s “Trading Nation” on Wednesday. “We will be surprised at the level of operational leverage.”
Last year, growth businesses were among the big winners. The Nasdaq gained 44%, while the Nasdaq 100, which tracks the largest tech-oriented companies in the index, gained 48%.
“They made a lot of money, and it’s institutionally important. But those are really crowded trades, too,” Lee said. “They are very expensive compared to the epicenter group.”
He also notes that a rising interest rate environment will pose additional challenges.
“Growth stocks don’t do that well,” he said. “They are really going to want to be in high net worth, cyclical, economically sensitive companies, and that’s what we really call epicenter trading.”
Around the time the FDA began approving Covid-19 vaccines late last year, the rotation in stocks tied to economic growth attracted more money. Lee suggests that we go to the races now.
“There is a double urgency for people to really make sure they have enough exposure to these epicenter stocks to really capture the upside in 2021,” said Lee, a CNBC official.
It highlights the energy that directly benefits from recovery and is one of the biggest winners. The Energy Select Sector SPDR Fund, which emulates the group, is up 33% so far this year.
“The epicenter of the epicenter is the energy sector,” he said.
Lee, still optimistic about the overall market, claims the new leadership could put the technology under pressure for years.
“It could be a generation move,” said Lee. “We are two months in what could be happening in the next 10 years [to] 20 years. “
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