Big Tech drawing dip buyers again, but some investors say diversification is prudent move

The tech slide has many investors anxious to buy the dip, but now is the time for caution, some say. Communication services and information technology stocks are the two worst-performing S & P 500 sectors this quarter, after having fallen into a correction from their peaks in July. Communication services is more than 11% off its 52-week high, while information technology is more than 12% off its recent high. For much of this year, any dips in the high-flying tech stocks have proven to be a buying opportunity for investors, as the promise of artificial intelligence has traders unable to stay away from these names for long. Investors were buying the dip again midday through the trading session Tuesday. But the prospect of slowing growth after the mixed August jobs report, and the likely scenario of the Federal Reserve starting to lower rates starting next week, has many investors looking elsewhere in the market for gains. “Instead of overweight technology, we’re kind of more at equal weight,” said Ken Mahoney, CEO of Mahoney Asset Management. “We’ve been overweight because of narrow participation in the market. It is spreading, or will spread out more over time.” The broadening participation will likely help this year’s market laggards such as health care, financials and industrials, more defensive sectors that should continue to rally after their underperformance this year. Bonds over tech? Rob Williams, chief investment strategist at Sage Advisory, expects it’s better to have some diversification heading into late cycle sectors, particularly in quality companies. For the overall portfolio, he prefers upping his allocation to bonds over the equity market. “There’s some room to grow later in 2025, so, but that’s a whole year plus ahead,” Rob Williams, chief investment strategist at Sage Advisory, said. “I just think, looking at the valuations and the concentration, it just makes it seems like the prudent move is to have way more diversification right now.” In fact, Savita Subramanian, equity and quant strategist at Bank of America, said Monday that she prefers utilities over tech, saying that “quality and income are the new growth and P/E expansion” as she expects income will contribute more to investors’ total return in the next decade than it did in the past 10 years. To be sure, however, other investors are bullish on the case for large tech stocks, saying that lower valuations, fortress balance sheets, and further upside from artificial intelligence are making the sector increasingly attractive at the moment. “We think that has a long runway, and actually there’s probably upside risk to the AI, the capex story for next year,” Jason Draho, head of Americas Asset Allocation at UBS Global Wealth Management, told CNBC’s “The Exchange” on Monday. However, when it comes to the Magnificent Seven, Draho is far more choosy. He prefers names better exposed to the AI story such as Apple, Microsoft and Nvidia than he does Tesla.