Tech Stocks Have Made a Comeback, But It Doesn't Seem Sustainable. Tips on Playing the Sector

The technology sector has recently seen a resurgence, giving the impression that the overall stock market is recovering. However, this rebound has been driven mainly by a select group of large-cap tech companies, rather than a broad-based market rally—suggesting investors should proceed with caution.

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Investor enthusiasm has returned to major tech stocks. The Roundhill Magnificent Seven ETF has jumped 32% since hitting its lowest point of the year on April 8. Likewise, the MicroSectors FANG+ ETNs—which focus on ten leading tech, media, and internet companies—closed at an all-time high of $61.76 last Friday. Since April 4, when the ETN saw its 2024 low, it has surged nearly 37%, according to Dow Jones Market Data.

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But the broader picture reveals a more fragile foundation. While capital is flowing back into equities, it’s disproportionately concentrated in a few major tech names. This isn’t the kind of rally that lifts the entire market, warns seasoned trader Mark Minervini. He emphasizes that a genuine bull market typically shows strength across many stocks, not just a few.

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As of Monday’s close, only 38% of Nasdaq-listed stocks were trading above their 200-day moving averages. While that marks a modest improvement from late February—when 40% reached that threshold—it still falls short of what’s considered a healthy trend.

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According to Minervini, at least half, preferably 60%, of Nasdaq stocks need to trade above this long-term average to confirm that the market is truly gaining strength. Without broader participation, the handful of outperforming stocks could struggle to maintain momentum.

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The rally in Big Tech may largely stem from investors wanting continued exposure to the artificial intelligence theme while focusing on highly liquid names—those that are easier to sell quickly in case of market downturns. This strategy reflects ongoing caution about the macroeconomic environment, particularly concerns stemming from trade tensions and geopolitical uncertainty.

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Minervini believes this backdrop calls for careful positioning. Investors should avoid speculative bets and instead focus on established large-cap stocks that are still trending upward. It’s not the time to take outsized risks or try to beat the market. Instead, sticking with what has been working may be the more prudent path.

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Jerry Sneed, managing partner at Third View Private Wealth, agrees that there’s logic in remaining committed to Big Tech, especially since that’s where recent gains have been concentrated. For those already holding shares in the so-called “Magnificent Seven,” he advises staying the course—but with a clear understanding of what these companies do and the long-term nature of the AI investment theme.

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Sneed outlines two reasons for this approach. First, investing in artificial intelligence is a long-term endeavor, not something that’s likely to deliver quick results. Patience and tolerance for volatility are necessary. Second, when investors understand the core drivers of a company’s success—as well as its risks—they’re less likely to be rattled by daily market headlines or short-term news cycles.

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That logic even applies to a volatile stock like Tesla. Tesla shares have seen heightened fluctuations lately, partly due to CEO Elon Musk’s frequent involvement in political issues.

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A recent public spat between Musk and former President Donald Trump generated buzz and coincided with market moves. Although Tesla has rebounded in the last two sessions, it remains down 7% from its Wednesday close before the dispute went viral.

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Musk’s polarizing image has led some investors to question whether to hold onto the stock. But Sneed argues that if someone is already invested and is comfortable with the political noise, they shouldn’t sell just yet—particularly with Tesla’s much-anticipated robotaxi event scheduled for August in Austin, Texas. That launch represents a significant step toward the company’s ambitions in autonomous vehicles, which may be a key reason many investors bought in initially. In Sneed’s view, exiting now could undermine the original investment thesis.

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However, given today’s uncertain economic landscape, Sneed emphasizes the importance of financial balance. To manage risk, he suggests parking some funds in short-term bonds or certificates of deposit (CDs).

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These vehicles offer modest yields while keeping capital accessible, helping investors avoid having to sell volatile stocks during unfavorable market conditions. This kind of strategy helps weather market instability without sacrificing the potential for longer-term gains.

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In sum, while Big Tech’s revival offers hope, the broader market remains uneven. Investors should remain selective, emphasize liquidity, maintain long-term conviction, and balance equity exposure with safer, income-generating assets.

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