NEW YORK (Reuters) – A series of earnings reports are due in the coming weeks to test the recent rally in technology stocks and other megacap stocks. Technology stocks and other mega-cap stocks are a category whose leading position in the U.S. market has been shaken after last year’s big sell-off.
The tech-heavy Nasdaq 100 Index (.NDX) is up more than 3% in 2023, twice as much as the S&P 500 (.SPX). Shares of mega-cap companies in non-tech sectors such as telecom services and consumer goods soared, including Amazon (AMZN.O), Meta Platforms (META.O) and Nvidia (NVDA.O) doubling. bottom. – The percentage of digits increases.
Several factors are driving its outperformance, including being piled on stocks that investors believe have been overly punished in 2022.
But now the focus has shifted to whether these companies can weather a widely anticipated recession while maintaining valuations that some investors consider too high.
Recently Apple (AAPL.O) and Microsoft (MSFT.O).
Tech and growth stocks have led the U.S. stock market for years since the 2008 financial crisis, aided by near-zero interest rates. Markets across the board struggled last year as the Federal Reserve hiked interest rates to combat rapid inflation. The Nasdaq 100 is down his 33% in 2022, while the S&P 500 is down his 19.4%.
Apple, Microsoft, Alphabet (GOOGL.O), Amazon, Meta and Tesla (TSLA.O), the top six stocks by market capitalization in the second half of 2021, saw their overall weight in the S&P 500 drop from 25% to 18%. . According to Strategas Research Partners.
This dynamic reflects the pattern seen after the market dotcom bubble burst at the turn of the century. According to Strategas, the top six stocks’ share of the S&P 500 at that time fell from 17% at its peak to 5%.
“This leadership dissolution will be measured in years, not months or quarters,” said Chris Verone, head of technical and macro research at Strategas.
earnings test
The companies that make up more than half of the S&P 500’s market cap will see results in the next two weeks, including Microsoft, the second-largest US company by market cap, on Tuesday, Elon Musk’s Tesla and IBM (IBM.N) on Wednesday, and Intel. I plan to report it. (INTC.O) Thursday. Apple, the largest US company by market capitalization, and Google’s parent company, Alphabet, report next week.
According to Refinitiv IBES, the technology sector’s fourth-quarter earnings are expected to decline 9.1% year-over-year, compared to a 2.8% decline in overall S&P 500 earnings.
A key question for many once-growth mega-cap companies is whether they can significantly increase revenues and profits while cutting costs in the face of a possible recession.
Alphabet (GOOGL.O) said Friday it will cut about 12,000 jobs, or 6% of its workforce. On Wednesday, Microsoft announced it would cut 10,000 of her jobs, and Amazon began notifying employees of her 18,000 job cuts.
“If you can show control over spending while at least maintaining reasonable growth, that could be the biggest positive,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey. said. “It’s a difficult balancing act.”
Tech and mega-cap valuations have moderated after last year’s sell-off, but still outperform broader market valuations. The tech sector in the S&P 500 is above its 7% average over the past decade and still trades at a premium of around 19% to the broader index, according to Refinitiv datastream.
Despite this, some investors are reluctant to bet on tech stocks.
The Wells Fargo Investment Institute lists technology as one of the favored sectors in the United States.
The firm is anticipating a recession and believes many tech companies are operating in a resilient way to economic uncertainty, said Samir Samana, senior global market strategist at the firm.
“It’s too important and too weighty not to participate,” Samana said. “But the years of handily outperforming the S&P are probably past.
Reported by Louis Krauskopf. Edited by Ira Iosebashvili and John Stonestreet
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