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AI FOMO powers frenzied big tech rally

Global fund managers have a bad case of Fear of Missing Out as they chase the artificial intelligence-driven tech rally and ignored the weak economic outlook and hawkish central banks.

According to the June Bank of America investor survey, ‘long tech’ has emerged as the preferred trade for fund managers wanting to clamber aboard the boom sparked by US chip company, Nvidia, and then added to by the likes of Tesla, Apple (of course), Alphabet and Amazon

The survey of 285 respondents overseeing $US764 billion ($A1.1 trillion) in assets showed that 55% of participants going “long big tech”, making it the most crowded trade. Shorting Chinese equities was also popular, at 13% (although the monetary policy easing now underway in China might make that a bit problematic).

But reality was very different from the AI frenzy as in fact investors cut their allocations to equities to a five-month low in the survey.

That’s despite a cut in cash allocations – the survey showed that the average cash allocation declined to 5.1% in June from 5.6% in May and they remain overweight bonds in another sign of a desire for safety.

Despite the new enthusiasm for (some) shares, investors remain broadly underweight equities, meaning that apart from the AI stocks and the big techs, that most have missed out on the return by the S&P 500 to a bull market last week.

And, unless they gave up more cash since the survey was completed a week ago, they missed the surge by the S&P 500 and Nasdaq to 14-month highs on Thursday.

Apple shares rose 1.1% to end at $US186.01 and touched a new all-time high of $US186.52 during trading. Apple is now just $US700 million from being the first ever $US3 trillion company. It could get there on Friday.

Microsoft shares rallied 3.2%, beating its previous record high close in November 2021 with an all-time high of $US349.84 in trading. The shares ended at $US348.10 and the company’s market value ended at $US2.59 trillion, not far behind. Apple.

There’s also the Fed pause approach which saw many investors hold off on equities (and miss Thursday’s big rebound after the Fed did pause).

Inflation remains a concern and though it is clearly easing (as this week’s Consumer Price Index showed and the Producer Price Index).

BofA strategist Michael Hartnett wrote in a comment that measured by cash levels, economic growth expectations and asset allocation — sentiment among investors remains “stubbornly low,”

Despite that, survey participants are optimistic about the impact of AI over the next two years, with 40% expecting it to drive corporate profits higher, Hartnett said.

On the Fed’s future moves, the survey showed that 59% of participants don’t think the central bank is done raising rates yet.

That’s a quite a reversal from the previous month, when 61% indicated the central bank had delivered its last hike.

The shorting of Chinese equities is linked to a belief that the much heralded China re-opening boom has vanished with growth expectations for China back to levels seen in November 2022 (pre-the Covid re-opening.).

The weak Chinese economic data confirms the rightness of that call, as does the monetary policy easing now underway.