Wall Street’s Big Tech enthusiasm getting stronger

Behavioural shifts during pandemic have lifted sector further into stratosphere

NEW YORK:

Tech stocks were going strong even before the 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 are clear winners and losers right now in the market,” said Dan Ives, an analyst at Wedbush Securities, who thinks the biggest 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.

The latest surge means that just five companies, the so-called “FAANG” group -- Facebook, Apple, Amazon, Netflix and Google – 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.

Krosby agreed that politics remains a wildcard, and if former Vice President Joe Biden wins the battle for the White House in November that could make aggressive action by Washington more likely. Large tech companies are expected to be a bright spot in the upcoming earnings period, which kicks off this 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.

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.

Published in The Express Tribune, July 13^th, 2020.

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