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A man with a face mask passes the Nasdaq MarketSite in New York on March 9, 2020.

Shannon Stapleton/Reuters

Some investors are getting increasingly worried about the outlook for technology and big growth stocks after a massive rally that has pushed the Nasdaq Composite index to record highs despite the coronavirus-inflicted economic damage.

Few can complain about the performance of the S&P 500 Growth Index, whose components range from Netflix Inc. to medical device maker ResMed Inc. and is up more than 10 per cent for the year to date, while the broad S&P 500 remains down 2 per cent over the same time. Instead, investors say the popularity of tech and growth stocks at a time of global economic uncertainty has left their valuations stretched and primed them for a decline.

“Yesterday was a first warning shot for growth stocks and it might take a few weeks for the trade to come undone. Watch for Nasdaq volatility to be compressed as risk is priced out with common sense,” said Sebastien Galy, a senior macro strategist at Nordea Asset Management, referring to a technology sell-off late Monday. “The clock is ticking, significant prudence is warranted.”

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The tech-heavy Nasdaq Composite rose 0.94% Tuesday, marking the second consecutive day that the Nasdaq underperformed the overall market. The S&P 500 rose 1.34 per cent.

Over all, 74 per cent of global fund managers are long tech stocks, making it the most-crowded trade in the multidecade history of the Bank of America Merrill Fund Manager survey.

Such lopsided trades often result in subsequent underperformance, a Reuters analysis found. The “best short is tech stocks given positioning and stretched performance,” analysts at the firm said in a report.

Further economic shutdowns in California, which has seen a surge in coronavirus cases, could also weigh on tech and growth stocks, Spreadex analyst Connor Campbell said.

“California is specifically a tech haven, so this is going to have a disproportionate effect on tech stocks,” Mr. Campbell says. “That is the home of American tech, if that spreads further, if lockdown restrictions get tighter in California, then this will eventually get a knock-on effect on those big tech firms.”

An increase in inflation-adjusted interest rates should benefit value stocks at the expense of popular companies such as Amazon.com Inc., Apple Inc. and Google-parent Alphabet Inc., billionaire investor Bill Gross said.

“Value stocks, versus growth stocks, should be an investor’s preference in the near-term future,” Mr. Gross wrote.

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