Tech stocks are once again leading the markets higher, but analysts are divided on whether the rally will continue.


Top line

Tech stocks appear to be back in fashion after being shunned by investors during a widely-publicized sell-off earlier this year, with the stock market rallying sharply from two-month lows, once again driving the market higher as investors hold on to stocks.

Key facts

In the year The broader market has risen about 15% since June 16, as investors in defensive sectors — such as utilities, consumer goods and healthcare — bought shares of big tech companies amid a brutal market selloff in the first half of 2022. again leading the charge.

Since then, the tech sector has jumped nearly 20%, outperforming much of the market as investors buy stocks in tech companies following better-than-expected earnings seasons.

Tech stocks rallied again on optimism that inflation has peaked and, to some extent, on market expectations that the Federal Reserve could hold back interest rate hikes.

A stronger-than-expected jobs report eased recession fears last Friday, as inflation cooled to 8.5% year-on-year in July – less than economists’ expectations of 8.7% and down from 9.1% in June.

Among the sector’s best performers are tech giants like Apple and Amazon, which are up nearly 30% over the past two months, while other big names like Netflix and Tesla are up 40% and 37% in that time. .

The second-quarter earnings season has been a “major win” for tech companies, with spending, cloud software, consumer demand and even digital advertising all “far greater than feared from a white-knuckle backdrop,” according to Wedbush. Analyst Dan Ives

Important quote:

In the next 6 to 9 months, because of this slow recent growth period, the fourth industrial revolution technology trends will not go away and we will remain firmly on technology stocks. He says.. He names Microsoft and Apple as some of his favorite stocks in the sector, and argues that Tesla is a “highly disruptive technology name” as it ramps up production of electric vehicles.

Tangent:

Other big tech stocks that have risen since shares hit a June 16 low include parent Meta (up 10%), Google parent Alphabet (up 13%) and Microsoft (up 17%).

What to see:

Despite a sharp correction earlier this year, analysts at Goldman Sachs say “tech fundamentals are strong” with many companies “capable of outperforming inflation.” The company argued that it has “underestimated the tailwind” of the market, which gives other companies “the tailwind” of high inflation, particularly for tech companies that help other companies “minimize the impact of price increases or gain pricing power because of the quality of their innovation.” He said.

Interesting fact:

Tech stocks saw record inflows last week—the most since Bank of America clients bought the stock since 2008, when the company first began collecting data. Despite the recent influx of investors into big tech names, Bank of America analysts remain cautious: “While most tech companies beat expectations this quarter, we are concerned that tech may not be as defensive as some investors expect.” to the firm.

Key Background:

Some tech stocks took a big hit earlier this week after major semiconductor makers such as Nvidia and Micron cut their profit outlooks, citing a challenging economic environment and ongoing supply chain issues. An important part of the technology sector, semiconductors are used in everything from mobile phones and televisions to washing machines and refrigerators. While chipmaker shares fell this week, the rest of the tech sector still managed to score gains, although some analysts warn that the rally of the past few weeks may be coming to an end. “After falling sharply in the first half of the year, Big Tech’s recent rebound looks likely over,” said Edward Moya, senior market analyst at Oanda.

Further reading:

Dow jumps 400 points after consumer prices ease slightly in July—has inflation peaked? (Forbes)

Some experts are warning of a ‘bear market rally’ – here’s why stocks could hit new lows (Forbes)

Stocks under pressure despite strong jobs report as investors fear big Fed rate hike (Forbes)

Tesla’s 3:1 stock split wins stock approval—here’s what it means for investors (Forbes)





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