It’s time for investors to hedge their bets in technology stocks after a big rally during the first half of the year, according to Goldman Sachs. Arun Prakash of Goldman Sachs’ derivatives research team said in a note to clients on Tuesday that technology stocks appear volatile and may be due to the pullback. “Our analysis indicates that S&P Technology stocks are becoming unusually crowded relative to overall assets, and we see increased risks of negative asymmetry. We believe the recent rally in stocks and low implied volatility provide a compelling case for owning back hedges,” the note said. The hedge that Goldman proposes is to buy 6-month positions in the SPDR Technology Sector Fund (XLK) which are 5% of the funds. Put options give the holder the right to sell an asset at a predetermined strike price, and a put option is out of the money when the strike price is lower than the current market price of the asset. With put options, the downside risk for investors is limited to the premium paid for the contract. XLK is up 41.8% over the year so far, but has been showing signs of slowing down lately. The ETF rose just 1.5% in July. XLK Mountain YTD XLK is up more than 40% in 2023. That slowdown should continue in the back half of the year, according to Goldman. “We believe the medium reversion risk is the greatest over the next two quarters as the October quarter is typically the most volatile of the year for semiconductor and technology stocks,” the note said. XLK’s major holdings are Apple, Microsoft, and Nvidia. The fund does not hold some of the other big tech names, including Meta Platforms and Alphabet. — CNBC’s Michael Blum contributed to reporting.
