Tech Stocks Have Been the Market’s Stars. Are They Overbought?

Tech Stocks Have Been the Market’s Stars. Are They Overbought?

Like an Escher drawing hanging in a student’s dorm room, the stock market has begun to look rational and irrational simultaneously. Nowhere is that more obvious than in the Nasdaq Composite. The tech-heavy index has gained 18% this year, after practically ignoring the explosion of Covid-19 cases in places like Florida and Texas. It ended the week with three consecutive highs, and for good reason: The index is composed of the kinds of companies that can not only survive, but thrive, in a world where going about your normal, everyday business could get you sick. Yet there comes a point when even the soundest argument starts to sound specious, even to those making it, and that seems to be what is happening now. Deutsche Bank analyst Jeriel Ong went on record with his worries about Apple’s (ticker: AAPL) rally, yet left his Buy rating intact and raised his price target to $400 from $380. Others warn that the big tech stocks are getting expensive and crowded, yet see no alternative when future economic growth—and corporate profits—could be impaired. “I compare the current environment to the Twilight Zone,” says Ed Yardeni of Yardeni Research. “There are so many possible ways this could go.” For now, though, it seems to only go up—and there may be more to this than fundamental strength. Chris Harvey, U.S. equity strategist at Wells Fargo Securities, notes that when the Russell 1000 Growth index was rebalanced on June 26, the combined share of Apple, Microsoft (MSFT ...
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