A miserable week for US banks has been a boon for the shares of the nation’s biggest technology companies as traders flock toward their cash-rich balance sheets amid concerns about contagion in the financial sector.
(Bloomberg) — A miserable week for US banks has been a boon for the shares of the nation’s biggest technology companies as traders flock toward their cash-rich balance sheets amid concerns about contagion in the financial sector.
More than $500 billion in market value has been added to the four biggest US technology companies this week. Microsoft Corp. advanced 12% and is flirting with its best week in nearly eight years, while Alphabet Inc. is headed for its best weekly gain since 2021. Amazon.com Inc., meanwhile, has jumped about 9% and Apple Inc. is up almost 5%.
“Tech is more of a safe haven than your traditional cyclical sectors, and it has already gone through a re-pricing, which means it looks attractive relative to the rest of the market,” said Sam Stovall, chief investment strategist at CFRA.
The idea that big tech is safer has fueled the investor rotation, especially as turmoil in the financial sector — sparked by the collapse of Silicon Valley Bank and Signature Bank — underlines the perception of risk elsewhere in the economy. The KBW Bank Index, which tracks 22 of the largest US lenders, sank 14% this week, adding to last week’s plunge that was its worst since March 2020. Meanwhile, the Nasdaq 100 Index has gained roughly 2.2% over that two-week stretch.
That divergence has fueled the biggest spread between the Nasdaq 100’s weekly gain and the S&P 500’s since the financial crisis in October 2008. The Nasdaq 100, which is tech-heavy and doesn’t have meaningful exposure to financial companies, has gained 5.9% this week, compared with the S&P 500’s 1.4% rise.
Major technology and internet stocks offer investors something close to stability in the current market, as their durable revenue streams and market dominance suggest they could be relatively insulated from any economic downturn. At the same time, their strong balance sheets — along with valuations that were heavily compressed in last year’s selloff — suggest less downside potential than other areas of the market.
“In addition to lower Treasury yields, which has improved tech’s intrinsic valuation, investors are already looking out to 2024, where tech’s prospects for earnings growth is positive,” Stovall said.
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