You can tell a lot about a tree by looking at the rings in its trunk.
Each line represents a year in a tree’s life. A fat ring might mean it experienced a season of rapid growth. A thin, warped one could indicate drought or disease.
Sometimes, a simple stock chart can be just as revealing.
For example, take a look at this morning’s screenshot of QQQ — the ETF that tracks the Nasdaq.
Source: Yahoo Finance
It tells us everything we need to know about the 2025 market so far.
We came in on a high note and kept the momentum going past the inauguration. Then came the first whiff of tariffs… followed by Trump’s “Liberation Day” in early April.
And that’s when the market basically fell off a cliff.
Investors panicked. Some even feared we were entering a new Great Depression.
I wasn’t one of them.
After this big sell-off, I told my readers that this was one of the best buying opportunities we’ve had since COVID.
Fast forward to today, and the Nasdaq is at an all-time high.
But what the market revealed to us last week could indicate that another change is coming.
According to Goldman Sachs, hedge funds are offloading tech stocks at the fastest pace in over a year. And they’re rotating into defensive sectors like consumer staples, health care and utilities.
In other words, they’re ditching innovation for toothpaste and ibuprofen.
So why is the market still grinding higher?
Let’s unpack what’s really happening…
Because it reveals a growing divide that’s setting the stage for what could be the next big move in tech stocks.
Wall Street Retreats WhileMain Street Charges Forward
Hedge funds are cutting long tech exposure at the fastest rate in 12 months. Over the past 30 days, they’ve shed more than $45 billion in U.S. equity exposure.
Much of that came from the same tech and AI names that powered the rally earlier this year.
A Goldman Sachs client note seen by Reuters confirms that last week’s pullback is the steepest in a year. It spans chipmakers, software firms and IT services across North America and Europe.
Exposure to tech and media stocks has dropped to a five‑year low, with some funds now shorting the sector outright.
This reflects a bigger trend dating back to early 2025, when Goldman first warned about intense global equity sell-offs across sectors due to tariff concerns.
Why the sudden pullback?
Because some big tech names are trading at 30%+ premiums to their 10-year averages.
And with tariffs back on the table — and the Fed still unsure about rate cuts — many fund managers are worried about inflation creeping back into the picture.
That means selling high-flyers like Nvidia and Tesla and shifting into defensive stocks that can ride out uncertainty.
Fact is, many of these funds were chasing the same basket of stocks earlier this year. And when the market dipped in February, they got caught on the wrong side of the trade.
Now they’re unwinding those positions and reallocating into staples like food and personal care.
And for the time being, it seems like institutional investors will keep playing defense.
But just the opposite is happening with retail investors.
While hedge funds are raising cash and cutting risk, everyday investors are pouring money into tech stocks and AI-themed ETFs at a record pace.
In fact, this is shaping up to be the widest divergence between institutional caution and retail conviction since the post-COVID rally.
JPMorgan estimates that individuals poured $270 billion into U.S. equities in the first half of 2025.
And they’re projected to add another $360 billion by year-end.
That’s over $600 billion in “grassroots” capital expected to flow into the market this year, with the bulk of it targeting tech and AI.
But unlike the heady post-COVID days, these investors aren’t one-off meme stock traders anymore.
The average retail investor today is 33 years old.
They use mobile platforms like Robinhood and Webull.
And they are increasingly financially savvy, even though they are more likely to get information from Reddit threads or YouTube channels — or even AI-powered sentiment trackers — to find their next trade.
In short, they’re informed and digitally native. But they’re also susceptible to what researchers call “social contagion.”
In other words, when stocks like Nvidia or Palantir start trending, a single Reddit thread, or a TikTok clip or even a quote from a high-profile CEO could be all it takes to trigger a wave of buying.
They’re not as concerned with fundamentals.
They’re more concerned with momentum. And they’re not afraid to buy the dip.
And that’s something all investors need to pay attention to, since retail traders now account for nearly 21% of daily U.S. equity volume.
That’s up from just 10% a decade ago.
But is it enough to keep this rally going?
Here’s My Take
I recently told Extreme Fortunes readers that this market feels like a “grind higher.”
In other words, it’s a low-volatility stretch where momentum takes over and retail investors keep piling in.
Hedge funds are sitting on the sidelines for now, watching this rally unfold without them.
But if retail investors keep buying, as JPMorgan predicts, it could add another 5% to 10% upside for the S&P 500 in the months ahead.
So far, earnings have been decent. The Fed is in wait-and-see mode, and AI implementation is boosting profit margins across industries.
If this holds, there’s your bull case for the rest of the year.
But we’re heading into the fall, which is historically one of the weakest stretches for stocks.
And if any of Trump’s tariffs start to hit consumer prices, or if the Fed situation gets dicier than it already is, we could see the current bullish sentiment turn bearish fast.
After all, the market can’t run on momentum forever…
And that could be a big problem for today’s high-flying tech stocks.
Regards,
Ian KingChief Strategist, Banyan Hill Publishing
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