(Bloomberg) – Investors excited about big tech again.
With doubts re-emerging about the strength of the post-pandemic boom, retailers are shifting back to the tech giants, whose dominance in high-growth industries makes them ready to keep increasing sales and profits even if the economy slows.
That has fueled outperformance since the beginning of June and marks a shift from earlier this year, when so-called reflation trading was all the rage, when investors invested in the stocks of companies whose assets are closely tied to cyclical fluctuations in the economy.
As a result, the market value of the top five tech companies – Apple Inc., Microsoft Corp., Amazon.com Inc., Alphabet Inc., and Facebook Inc. – has grown by more than $ 1 trillion since early June.
“100% growth cannot be sustained, and as this returns to something more normal, it will push investors back towards growth stocks,” said Jim Meyer, chief investment officer at Tower Bridge Advisors.
The resurgence of tech interest reflects rising belief that the rapid growth sparked by the country’s reopening cannot be sustained in the long run. Such views helped lower government bond yields this week, although that decline was partially reversed on Friday during a broad-based rally in the stock market.
Tech industry goliaths may also have benefited from the cooling of so-called meme stocks, which are being attacked en masse on social media by individual investors for quick profits. According to a report by Vanda Research, some have moved to the largest tech companies instead, as there are fewer places. The company’s Ben Onatibia and Giacomo Pierantoni said they had “relentless” retail demand for chip maker Nvidia Corp. seen that spreads to Amazon and Apple and “brings back memories of last year’s summer rally”.
The upcoming release of earnings reports for the second quarter could fuel investor optimism. All five companies are expected to see double-digit sales growth, according to Bloomberg, with a 30% increase for Amazon and 50% for Alphabet and Facebook. The total sales of the S&P 500 are expected to increase by 19%.
“They really should be owned for the long term,” said Richard Saperstein, chief investment officer at Treasury Partners, which manages $ 9 billion in assets. “Your earnings are accelerating, be it in the cloud, in search, or in online commerce, and you’ve made huge investments annually that lead to potential new business opportunities and innovation.”
The fate of the five largest US technology stocks has a huge impact on broader market indices: With a total value of about $ 9 trillion, they make up nearly a quarter of the S&P 500 index and are worth more than the smallest 356 companies combined, according to more data compiled by Bloomberg.
So far, Apple and Amazon have led the rise in megacap technology. Apple received a boost this week from JPMorgan Chase & Co., who said it is a good time to buy the stock as excitement over the company’s next iPhone will rise in the second half of the year. The shares of the Cupertino, California-based company rose 3.7% to hit their first record in five months.
Amazon.com saw a 5.9% gain in its first week under Andy Jassy’s leadership, in part due to the Pentagon’s announcement of the $ 10 billion contract it awarded Microsoft in 2019 delete and split the job between the two.
China’s crackdown on tech companies like ride-hailing giant Didi in recent weeks has fueled interest in US companies as an alternative. And Facebook was helped when a judge recently dismissed a Federal Trade Commission lawsuit, pushing company valuation above $ 1 trillion for the first time.
The latest increase has been received with a lot of skepticism. According to Bank of America Corp. have sold customers in the recent rally. Tech and communications services – the sector that includes both Alphabet and Facebook – “have seen record or near record sales in the past four weeks.” Bank of America strategist Jill Carey Hall said the outperformance appeared to be “a fake head.”
David Katz, chief investment officer at Matrix Asset Advisors, doubted the oversized run could be sustained for companies like Apple.
“It’s a powerful company that has re-created itself several times, but it’s not cheap,” he said in an interview. “We own it and are comfortable with it, but we believe the sizable six-week breather in the rotation to Value will be just that: a breather.”
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