Investors Find a Lot to Like in Tech, Even as a Market Bottom Remains Elusive

(Bloomberg) — Even if the Federal Reserve hikes interest rates and drops tech stocks, staying out of the sector will only get harder.

On one hand, there’s so much to like: The Nasdaq 100 index is now 35% cheaper than when it peaked in 2020, megacaps like Apple Inc. are still filling their coffers with cash, and the earnings outlook shows no signs of slowing significantly.

The index fell 0.8% on Thursday and is down nearly 30% so far this year.

But the Fed. The market chatter ahead of Wednesday’s monetary policy meeting was that there was a high probability of a relief rally in tech if the central bank hiked interest rates by 75 basis points as expected. Turns out it wasn’t that easy. The Nasdaq 100 fell to lows from early July, erasing most of the summer rally after striking a more hawkish tone than the Fed had hoped.

So why not do without technology until the dust settles? That’s just not an option for most institutional investors, as the industry is by far the largest in the S&P 500 Index, at nearly 27% of the benchmark. When tech stocks reverse and you miss the rally, it could spell career death.

Also Read :  Precarious Action in the Bonds and Stock Market

Stock pickers therefore tend to look for “quality” companies with durable deals or stock charts. Apple Inc. is down just 13% this year. T-Mobile US Inc., cybersecurity company Palo Alto Networks Inc., and chipmaker Texas Instrument Inc. are some of the others that have also managed to beat most of their tech peers.

“Look for companies with high market share, a good moat and low risk of substitution,” said Brian Battle, commercial director at Performance Trust Capital Partners. “Microsoft makes things that people pay for. Apple sells billions of consumer products and it’s hard to replace them.”

Companies that do not have these characteristics are listed on the stock exchange. Take Meta Platforms Inc., the Facebook owner that relies on ads. It has lost 58% of its value this year. The situation is similar for Snapchat owner Snap Inc. and streaming video company Netflix Inc.

As long as real yields in the bond market continue to rise, tech stocks are likely to have yet to bottom, which argues against buying them into the Nasdaq 100. While the index’s earnings multiple has fallen sharply, it is falling from a very inflated level. But stock pickers are finding a lot to buy in the technology space.

Also Read :  Challenging conditions put corporate integrity standards at risk in emerging markets | EY

“So it’s gotten cheaper, but it’s not cheap,” said Alec Young, chief investment strategist at Mapsignals, a quantitative research firm. “Until it feels like the Fed is able to take a pause on tightening, tech probably won’t be a leader.”

Tech chart of the day

Top Tech Stories

  • Inc. lost a bid to bar top executives, including billionaire founder Jeff Bezos and chief executive officer Andy Jassy, ​​from testifying in a Federal Trade Commission investigation.
  • Sometime next year, Tim Cook will appear before Apple Inc.’s faithful and unveil the company’s next major computing platform, a headset that mixes virtual reality and augmented reality.
  • Meta Platforms Inc. has been sued for allegedly developing a secret workaround for security protections that Apple Inc. introduced last year to protect iPhone users from being tracked on their Internet activity. Meta acknowledged that the Facebook app monitors browser activity but denied that it collects user data illegally.
  • Sandra Rivera, CEO of Intel Corp., has what was once the most coveted job in the semiconductor industry: running the company’s highly lucrative data center division. Today is the hardest.
  • microsoft corp will not flag social media posts that appear to be inaccurate to avoid appearing that the company is trying to censor speech online, President Brad Smith said, hinting that the company is taking a different approach than other tech companies dealing with it with disinformation.
  • BT Group Plc is facing walkouts by staff who handle ‘999’ calls for the emergency services, exacerbating their wage dispute amid a nationwide spate of industrial action in the UK.
  • Britain’s digital regulator Ofcom said it would launch a series of probes into digital markets, including cloud computing, internet messaging and smart devices, marking another step forward in its scrutiny of the world’s biggest tech companies.
  • Kittyhawk, the air taxi company backed by billionaire Google co-founder Larry Page, is set to close, bringing a blow to the long-held dream of developing flying cars.
  • US secret agents gained control of parts of China’s telecommunications network after hacking into a state-funded university, reported a prominent state-backed newspaper that ran Beijing’s recent allegation of US cyber-intrusion.
  • Former British Prime Minister Boris Johnson was only halfway through the introduction of several key policies when his government collapsed in a mass resignation. His successor, Liz Truss, is now likely to water down a number of overdue technology and media decisions.
Also Read :  Bond markets facing historic losses grow anxious about Fed that 'isn't blinking yet'

(Updates to the market open)

©2022 Bloomberg LP

Source link