Tech companies have limited stock growth
2023.01.21 02:42
Tech companies have limited stock growth
By Kristina Sobol
Budrigannews.com – Technology and other megacap stocks, whose leadership position in U.S. markets has weakened since the severe selloff of last year, will be put to the test by a series of earnings reports in the coming weeks.
The tech-heavy has increased by nearly 6.2% in 2023, while the has increased by 3.45%. Amazon (NASDAQ:), among other megacap companies in non-tech industries like communication services and consumer discretionary, have seen their shares soar. Nvidia and Meta Platforms (NASDAQ:) achieving percentage increases of double digits.
This outperformance is being driven by a number of factors, including investors buying up stocks they believe were overpriced in 2022. Investors speculated that the group is also likely benefiting from a moderation in bond yields, whose spike last year particularly strained valuations of technology stocks.
However, the question of whether these businesses are able to support valuations that some investors believe to be excessive is now the primary focus.
“The guidance for ’23 has to be less worse than what people are anticipating to keep this rebound going,” stated Peter Tuz, president of Chase Investment Counsel, whose company recently reduced its stake in Apple (NASDAQ:). as well as Microsoft (NASDAQ:
After the financial crisis of 2008, tech and growth stocks dominated U.S. equity markets for years, helped along by interest rates that were close to zero. As the Federal Reserve raised rates to combat rising inflation last year, they struggled alongside the wider markets, and some investors are skeptical that they will regain the market’s leading position anytime soon. In 2022, the S&P 500 lost 19.4%, while the Nasdaq 100 lost 33%.
Alphabet, Apple, Microsoft, and the other six largest stocks by market value at the end of 2021 (NASDAQ:), Tesla, Meta, and Amazon (NASDAQ:) according to Strategas Research Partners, their combined weight in the S&P 500 has decreased from 25% to 18%.
After the market’s dot-com bubble burst around the turn of the century, that dynamic echoes a pattern. According to Strategas, over a number of years, the six largest stocks at the time saw their combined weight in the S&P 500 decrease to 5% from a peak of 17%.
Chris Verrone, who is in charge of Strategas’ technical and macro research, stated, “This leadership unwind… is going to be one that is measured in years, not in months or quarters.”
Microsoft, the second-largest U.S. company by market value, will report results on Tuesday, along with Elon Musk’s Tesla and IBM (NYSE:), which account for more than half of the S&P 500’s market value. on Wednesday, and Intel this Thursday The following week, Alphabet, a subsidiary of Google, and Apple, the largest company by market value in the United States, issue reports.
According to Refinitiv IBES, the S&P 500’s earnings are expected to have decreased by 2.8%, while the tech sector’s earnings are expected to have decreased by 9.1% from a year ago.
In the face of a potential recession, a crucial question for many megacaps, once praised for their phenomenal growth, is whether they can significantly cut costs while simultaneously increasing revenue and profits.
The latest tech giant to announce layoffs was Alphabet Inc., which announced on Friday that it would be cutting approximately 12,000 jobs, or 6% of its workforce. While Amazon began informing employees of its own 18,000 job cuts on Wednesday, Microsoft announced that it would be cutting 10,000 positions.
Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey, stated, “The biggest positive could be if they could show a control of expenses while keeping at least reasonable growth intact.” It’s hard to strike a balance.”
Despite the selloff that occurred last year, tech and megacap company valuations continue to outperform the market. Refinitiv Datastream says that the S&P 500 tech sector still trades at a roughly 19% premium to the broader index, which is higher than its 7% average over the past ten years.
Despite this, some investors are wary of placing bets on tech stocks.
The NYSE: Wells Fargo One of Investment Institute’s favorite U.S. industries is technology.
Senior global market strategist Sameer Samana stated that the company anticipates an economic downturn and believes that many tech companies have businesses that are resilient to economic uncertainty.
Samana stated, “It’s just too important and too much weight to not participate.” However, the days of easily outperforming the S&P 500 are probably over.
