The Nasdaq-100 entered a bull market. Why it’s time to sell Apple and Microsoft

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The

Nasdaq 100,
home to

Apple
,

Microsoft
,

and other Big Tech stocks only entered a bull market– and now looks like a good time to take profits.

That may seem strange. The Nasdaq-100, which includes the 100 largest stocks on the Nasdaq, is up 21.9% from its Dec. 28 low, meeting the technical definition of a bull market, which begins with a 20% rise from a bear market low. Why throw away what works?

Because only a few of the stocks actually work. Larry McDonald of the Bear Traps Report notes that Apple, Microsoft,

meta platforms

(META),

Amazon.com

(AMZN) and

alphabet

(GOOGL) have done the hardest work this year. We would add

NVIDIA

(NVDA) also to this group. Combined, they averaged a 39% gain for the first three months of the year, while the rest of the Nasdaq-100 gained 19%

S&P500
only increased by 5.2%.

And the big might just have gotten too big. Apple, for example, is up 25% this year, and its weight in the S&P 500 has jumped from a troubled 6.4% at the end of 2022 to a troubled 7.6% on March 29. Larry McDonald of The Bear Traps Reports notes that many portfolio managers have a 5% cap on the weighting of stocks they can own, so every time Apple goes up, they have to scale back and pressure the stock. Microsoft also has a large weight in the index, which could become a headwind towards the end of the quarter. “The mad mob is looking for a SAFE place,” writes McDonald. “There is now ALL risk in the crowded safe havens!!!!”

And other indices look reduced risk. For example, while the Nasdaq 100 is up 18% so far this year, while the small-cap Russell 2000 is up just 0.5%, the Nasdaq is on course for its largest gap against the index since March 2020, when Investors rushed into big tech during the pandemic. The Nasdaq 100 also outperformed the Russell 1000 Value Index by 19.4 percentage points, its widest range since the first quarter of 2009.

Does any of this mean Apple and the rest of Big Tech have to start falling tomorrow? Of course not. But for investors thinking about the risk/reward trade-off in the current conditions, the best bet seems to be anywhere but the Nasdaq-100.

Write to Ben Levisohn at ben.levisohn@barrons.com