'We're certainly in a bubble,' strategist warns — but don't expect it to pop anytime soon

Key Points

• The S&P 500 tech sector fell more than 4% for the week, intensifying speculation that the stock market shakeout was likely not over yet.
• The space had largely been responsible for the broader market's strong comeback off its coronavirus lows.
• "I think we are certainly in bubble territory," Jonathan Bell, chief investment officer at Stanhope Capital, told CNBC's "Street Signs Europe" on Monday.

Tech stocks are unequivocally in "bubble" territory, a chief investment officer told CNBC on Monday, but that's not to say the recent "tech wreck" is going to continue in the short term.

U.S. stocks closed lower for the second consecutive session on Friday, bringing an end to a volatile trading week ahead of the long Labor Day weekend.

The S&P 500 tech sector fell more than 4% for the week, intensifying speculation that the stock market shakeout was likely not over yet. The space had largely been responsible for the broader market's strong comeback off its coronavirus lows.

"I think we are certainly in bubble territory," Jonathan Bell, chief investment officer at Stanhope Capital, told CNBC's "Street Signs Europe" on Monday.

Bell suggested there had been "so many good reasons" for investors to own the likes of Google-parent company Alphabet, Amazon, Apple, Microsoft and Facebook, pointing to their combined outperformance in the wake of the pandemic as something "everyone is talking about."

"It's not that these businesses aren't great businesses that are going to carry on going, it is just the exuberance related to them," Bell warned.

Shares of Amazon have shot up 78% so far this year, leading the so-called "FAANG" stocks. Shares of Apple and Netflix have skyrocketed 65% and 59%, respectively, while shares of Facebook and Alphabet have risen 38% and 19%, respectively, this year.

Bell pointed out that the so-called "big five" tech stocks already represent around 20% of the U.S. stock market, and given how big the U.S. market is globally, the tech giants amount to 12% of the MSCI World Index.

"You've got exuberance on just a very small number of stocks. That's certainly bubble territory," Bell added.

'Irrational exuberance'

When discussing whether the tech bubble he had described could burst in the near future, Bell drew a comparison to comments made by former Federal Reserve Chair Alan Greenspan in 1996.

Greenspan, in a now-iconic observation, warned at the time that there were signs of "irrational exuberance" in financial markets.

Stocks continued to rise for some time after Greenspan delivered his speech, but the line is often cited as a warning shot for the dot-com bust that would occur toward the end of that decade.

"I would be saying to people that this is a bubble-type territory, but it doesn't mean that it is going to deflate now. What we have seen in the last week or so is only an unwinding of the rise of the previous two weeks," Stanhope Capital's Bell said.

"There's still a lot of reasons to own these but be really careful, trim holdings … Look at the percentage weighting you've got. If you've got 15% or 20% and you're overweight those then be aware of that, but if you've got 30% or 40% of your portfolio in there, then that's a really big risk you're taking," he concluded.

His comments come after Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, described last week's sell-off as "a good wake-up call and a reminder that there are risks out there."

"In August, we did take a little bit off the table," Grohowski said.

Steve Massocca, managing director at Wedbush, said last week that "it doesn't take much" to trigger a downturn in tech, adding: "These stocks are very stretched to the upside."

"The wind direction just has to change," Massocca said.

— CNBC's Patti Domm contributed to this report.