Investors are cooling on technology stocks, but the sector remains dominant in a top-heavy market.

For the first time in 16 months, the technology sector is no longer the most crowded trade in global markets, according to Bank of America's fund manager survey. Allocations towards the sector sank over the past month, bringing the percentage of investors overweight in technology to its lowest level since December 2018. Indeed, investors have been growing wary of big tech for some time. An equal-weighted basket of the Fanmag stocks – Facebook, Amazon, Netflix, Microsoft, Apple and Google – has gained 7 per cent over the past six months, notes Ritholtz Wealth Management's Michael Batnick, compared with 17 per cent for the S&P 500. The index keeps hitting all-time highs but Microsoft and Amazon haven't made a new high since September, says Batnick. Indeed, almost 90 per cent of S&P 500 stocks have outperformed Amazon during that time.

Nevertheless, big tech continues to dominate. Apple constitutes almost 7 per cent of the S&P 500, notes Fortune Financial’s Lawrence Hamtil, the largest component weighting of any single company since at least 1980. The index’s 10 biggest stocks (almost all of which come from the tech sector) accounted for 28.6 per cent of the index at the end of 2020, according to JPMorgan’s quarterly Guide to the Markets – again, more than at any other time over the past 40 years. The 10 megacaps trade on 33.3 times earnings – way more than the top 10’s historical average (19.4) and the rest of the index (19.7). Outsized valuations and sector weightings suggest tech’s recent underperformance may not be a short-lived affair.