Wall Street’s big tech enthusiasm gets stronger

The tech-dominated Nasdaq Composite Index has closed at records in 6 of the last 7 sessions

NEW YORK • Tech stocks were going strong even before Covid-19, but behavioural shifts during the pandemic have lifted the sector further into the stratosphere, leaving the broader stock market far behind.

The tech-dominated Nasdaq Composite Index has closed at records in six of the last seven sessions, reflecting investors’ confidence that tech companies benefit from the so-called “stay-at-home” trade even as the market has pummelled airlines, hotels and brick-and-mortar retailers.

“There’re clear winners and losers right now in the market,” said Dan Ives, an analyst at Wedbush Securities Inc, who thinks the big- gest tech giants could still gain another 30% this year.

“From a winner perspective, the clear spotlight (is on) tech names.”

Technology companies are a “pocket of certainty” in a time of economic weakness, said Quincy Krosby, chief market strategist at Prudential Financial Inc.

The latest surge means that just five companies, the so-called “FAANG” group — Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc and Google LLC — now account for more than 20% of the value of the S&P 500.

With spiking coronavirus cases in the US expected to bolster the dynamics behind the recent surge, the industry’s biggest worry is probably politics, analysts said.

The CEOs of Apple, Google, Facebook and Amazon are scheduled to appear on July 27 at a Capitol Hill hearing on antitrust issues, possibly raising concerns that the government’s interest will move beyond political noise.

“July 27th is an important day to see if it’s more of a political grandstanding event or the beginning of something much broader in terms of going after the breakup of these companies,” Ives said.

Krosby agreed that politics remains a wildcard, and if former VP Joe Biden wins the battle for the White House in November, that could make aggressive action by Washington more likely.

Bigger Biotech

Large tech companies are expected to be a bright spot in the upcoming earnings period, which kicked off last week.

While airlines and cruise companies saw revenue drops of 90% or more during parts of the second quarter, tech giants such as Amazon and Netflix are projected to see gains of more than 20%, according to Wall Street analysts.

The Nasdaq surge also reflects gains by biotech companies working on vaccines and drugs to treat Covid-19, said David Kotok, co-founder of Cumberland Advisors Inc.

The sector “is a bargain today”, he said. “Healthcare companies are spending today and the revenue will come tomorrow.”

“I don’t think it’s a bubble,” Kotok added.

While the success of the Nasdaq is the most obvious sign of the tech surge, the broad-based S&P 500 also shows the increased weight of the sector.

As the Covid-19 crisis spread, the index removed motorcycle company Harley-Davidson Inc and department stores Nordstrom Inc and Macy’s Inc, replacing them with less familiar names like Tyler Technologies Inc and Bio-Rad Laboratories Inc.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said the pace of change could accelerate as fallout from the coronavirus crisis continues to mount.

“In turbulent times, you get higher turnover,” Silverblatt said. “The index at some point needs to react to the market and to the economy.”

Tesla Bubble?

The information technology group currently accounts for around 28% of the S&P 500, up from 16% in 2010.

Silverblatt declined to comment on speculation that Tesla will soon be added to the S&P 500, but one of the criteria is to post profits over four consecutive quarters, a requirement Tesla could meet when it reports results on July 22.

Shares of the electric carmaker have enjoyed a meteoric rise of late, eclipsing even other tech companies, and they now trade at more than four times their level in mid-March.

Though Tesla initially struggled to attain profitability, the surge has made it the world’s biggest car company in terms of market value, well above Toyota Motor Corp, General Motors Co and other traditional auto giants that sell many times the number of vehicles.

But some think Tesla’s surge has gotten out of hand, including analysts at JPMorgan Chase & Co, who see “lofty valuation coupled with high investor expectations and high execution risk”. — AFP