The Nasdaq Composite, with its large exposure to the biggest technology stocks, is starting the new year with a decided thud. After a stellar 2023, which saw the index rise by 43%, the Composite Index fell by 1.6% on Tuesday, the first day of trading in 2024. It continues to experience selling pressure.

This begs the question: Should traders and investors continue to take profits because investor sentiment is frothy?

Some market professionals are recommending that investors follow a strategy of sector rotation and sell the largest technology companies, which, in some cases, saw price appreciation of over 100%, and buy other sectors of the market that lagged the technology behemoths. Human nature says to "sell high and buy low," so there may appear to be some logic to the sector rotation strategy. But United States equities are marked by momentum trading. What goes up keeps going up, though there are periods when up markets take a breather. Still, when the uptrend is strong, most technical strategists recommend buying dips and riding the wave.

Last year was great not only for the biggest technology companies but also for U.S. equities generally. The S&P 500 was up 24%. The last two months of the trading year were particularly strong. The S&P index was up 10% in November and December. When the S&P 500 is up 10% or more for the last two months of the year, it is always up in the first quarter of the new year, and the index continues to deliver stellar performance for the entire year.

The outlook for U.S. equities is very positive . The Federal Reserve's 2% inflation target has been effectively achieved. The market overwhelmingly believes the Fed will cut interest rates this year. Economic fundamentals are solid. Real incomes are growing. The labor market is strong and resilient. Consumer confidence is rebounding. Gasoline prices are low and falling. A recession is well over the horizon.

Logic says that the biggest technology names, Apple, Alphabet-Google, Meta, Microsoft, Amazon, and selected semiconductor giants, should continue to lead the market higher. The artificial intelligence revolution is real. Business and sovereign nations alike see AI as an investment imperative. U.S. companies such as Microsoft with ChatGPT are beginning to commercialize AI. Alphabet-Google is deploying its AI offering Gemini right now. The most advanced AI systems cannot be developed and commercialized without GPU semiconductors designed by Nvidia, and Nvidia GPU semiconductors cannot be fabricated without the Dutch company ASML's highest technology lithography technology.

The valuations of the biggest technology companies are not excessive, given their fundamentals, earnings, free cash flow generation, operating margins, and competitive moats. The companies are growing two to four times faster than the typical constituents of the S&P 500. The companies generate significant amounts of free cash flow, and the companies invest much of that free cash flow in research and development to maintain their competitive advantage.

Amazon came public in 1997. In the early 2000s, the stock traded as low as $6. Investors who did not sell are reaping gains of 166,000%.

In turn, I believe it would be a mistake to trade out of big technology, the Nasdaq Composite, and the S&P 500. Upward momentum is your friend.

Disclosure: The writer owns Alphabet-Google, Meta, Microsoft and Nvidia.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.