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Sunday, July 12, 2020
Wall Street's Big Tech enthusiasm getting stronger
By AFP
Tech stocks were going strong even before COVID-19, but behavioral
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 pummeled airlines, hotels and brick-and-mortar retailers.
"There's 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 percent 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 percent 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 Vice
President 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 kicks off this week.
While airlines and cruise companies saw revenue drops of 90 percent or
more during parts of the second quarter, tech giants such as Amazon and
Netflix are projected to see gains of more than 20 percent, 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.
As the COVID-19 crisis spread, the index removed motorcycle company
Harley-Davidson and department stores Nordstrom and Macy's, replacing
them with less familiar names like Tyler Technologies and Bio-Rad
Laboratories.
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."
The information technology group currently accounts for around 28 percent of the S&P 500, up from 16 percent 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 car maker 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, General Motors 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, who see "lofty valuation coupled with high investor
expectations and high execution risk."
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