RPT-COLUMN-US Big Tech still too crowded: Mike Dolan

By Mike Dolan

LONDON, March 19 (Reuters) - Stock corrections are often just reality checks that ultimately allow bull markets to live on as investors "buy the dip", but this time around, global asset managers seem wary of jumping back into Wall Street's Big Tech behemoths.

Investors' heads may be spinning after a turbulent month of tariff angst, U.S. recession fears, a 10% recoil in the S&P 500 .SPX and Europe's fiscal reboot. The scale of the portfolio upheaval was captured on Tuesday by Bank of America's monthly fund manager survey.

The closely-watched poll of global asset managers showed the biggest one-month reduction in U.S. equity exposure in the 25-year history of the survey - a whopping 40 percentage point drop, leaving a net 23% of respondents now underweight.

And if you're wondering where that money's gone, look across the pond. Allocations to euro zone stocks jumped 27 points, with 39% now overweight - the highest in four years.

So far, so Transatlantic.

But for those who think U.S. downturn jitters are overblown, or that the hand-wringing in business and consumer surveys is not matched by hard factory or retail data, this may seem like a good moment to load back up.

However, the March survey offered a lot more to chew on, highlighting a smorgasbord of other concerns about erratic U.S. trade and economic policies, global growth risks, stagflation fears and a persistent aversion to bonds given interest rate and debt worries.

And most alarmingly for stock market optimists, investors still think the so-called "Magnificent Seven" U.S. mega caps are over-owned - even after one of their worst four-week periods with a near 20% plunge in the collective valuation of Apple, Nvidia, Microsoft, Amazon, Meta and Tesla.

For the 24th straight month, asset managers identified "Long Big Tech" as the most crowded trade on the planet.

CROWDED HOUSE

An easy retort is that being repeatedly identified as the "most crowded trade" over the past two years didn't stop a near doubling of the overall "Mag 7" price in that period.

And even if forward price/earnings valuations for the tech-heavy Nasdaq composite .IXIC remain historically frothy, they are their lowest in five years relative to the overall S&P 500.

And yet there's a tipping point for everything, and there are two key reasons why Big Tech may still reasonably be considered too crowded.

The first is that U.S. economic disruption is forcing unprecedented stimulus in Europe and China, where stock market valuations are far cheaper than on Wall Street. For many, the global "value trade" may simply be too tempting to ignore.

Europe's STOXX 600 .STOXX is still trading at a whopping 36% discount to the S&P 500, even after the recent rotation, and its forward PE remains almost 50% cheaper than the Nasdaq 100's .NDX.

And even though China's DeepSeek development this year has electrified Hong Kong stocks .HSI, they are still some 55% cheaper than the S&P 500.

The second reason Big Tech may be primed to fall further is what's happening over at the Federal Reserve. Big Tech stocks have historically been insulated from recession fears due to their interest rate sensitivity. They are "long duration" equities, meaning their valuations benefit disproportionately from falling equity discount rates.

But the tariff threats driving the downturn fear this time around could aggravate already hot inflation as much as growth. In turn, the Fed's hands may be tied more so now than in the past, thereby eliminating one of the tech sector's potential recession buffers.

What's not in doubt is how much these mega caps flattered the bull market due to the sheer size of their index weightings. Mag 7 stocks collectively still represent almost 30% of the S&P 500's market cap. So a drag on tech now risks being an equally large drag on the whole complex.

Global asset mangers have voted with their feet already - and may reasonably see the U.S. picture as too messy for the foreseeable future.

The opinions expressed here are those of the author, a columnist for Reuters