Investors are seeking succor from this week’s U.S. stock market volatility in shares of some of the most established technology companies in the wake of the collapse of California’s Silicon Valley Bank where many startup businesses banked.
The collapse of SVB and two other U.S. banks has sent shockwaves across bond and equity markets while raising serious questions about the health of the banking system.
But the biggest technology and semiconductor names are outperforming, according to FactSet data, helping to constrain losses on the Nasdaq 100, represented by the Invesco QQQ ETF QQQ, +0.52%, just as the S&P 500 briefly turned negative for the year so far. A rally in many of the biggest tech names like Apple Inc. AAPL, +0.26% Meta Platforms Inc. META, +1.92% and Microsoft Corp. MSFT, +1.78% helped push both the Nasdaq Composite COMP, +0.05% and Nasdaq 100 NDX, +0.42% into the green late Wednesday afternoon as both tech-heavy indexes finished higher, while the S&P 500 and Dow Jones Industrial Average finished in the red, although well above their lows from earlier in the day.
“There’s a flight to quality happening in the megacap tech names,” said Tom Forte, an equity analyst at D.A. Davidson who covers the technology space.
Apple Inc. shares have risen 2.3% since markets opened on Monday, according to FactSet. Microsoft Corp. MSFT, +1.78% shares have performed even better, gaining 6.3% so far this week, while Meta Platforms Inc. is up nearly 1.1% over the same period, having received a boost after announcing its latest round of layoffs. Shares of Netflix Inc. NFLX, +3.00% and Tesla Inc. TSLA, -1.53% have both risen roughly 3.5%.
Some hard-hit semiconductor names are also lending a hand, with shares of Intel Corp. 189300, 3.79% and Nvidia Corp. NVDA, +0.69% rising roughly 4% through Wednesday’s close.
These moves have helped the Nasdaq 100 NDX, +0.42% outperform the S&P 500 for 10 straight trading sessions, the longest such streak since 2017, according to an analysis by eToro’s Callie Cox. The index rose 0.4% on Wednesday.
To be sure, outperformance in technology names isn’t exactly a new phenomenon: growth stocks have outperformed the rest of the market since Jan. 1, with the Nasdaq having risen more than 8.5% in that time, compared with a drop of 4.3% for the Dow Jones Industrial Average DJIA, -0.87%.
The riskier the tech name, the better the performance, as speculative names with little or no profits to speak of have held up surprisingly well. The Ark Innovation ETF ARKK, +0.79%, seen as a benchmark for speculative tech names, has risen more than 20% year-to-date. However, its leadership of tech-sector performance has started to falter as the megacap names have outperformed ARK so far this week.
Analysts see several factors that have helped propel the larger technology names into the lead.
Over the past 24 hours, traders of Fed funds futures started pricing in as much as 100 basis points of interest-rate cuts by the Federal Reserve before the end of the year. This should be a boon for growth names, analysts said.
“I think the key driver of the recent rally in technology companies has everything to do with changing expectations about interest rates. Interest rates can heavily influence the multiple that you can ascribe to fast-growing technology companies,” said Art Hogan, chief market strategist at B. Riley Wealth.
Hogan also pointed out that many of these companies had seen their shares become extremely oversold in 2022, which has helped contribute to their latest bounce as traders swoop in to scoop up shares at a discount.
During 2022, the Nasdaq fell more than 33% as the Fed’s aggressive interest-rate hikes sent megacap technology names reeling. Meta, Tesla and Netflix were hit especially hard, as all three firms were ranked among the 25 worst-performing S&P 500 names last year, according to FactSet.
While megacap tech names like Apple, Meta and Alphabet are often referred to as technology giants, in reality, they are spread across several different S&P 500 sectors, including consumer discretionary, which is heavily weighted toward Amazon.com Inc. AMZN, +1.39% and Tesla, the information technology sector, where Intel and Microsoft are housed, and the communication services sector, home to Meta and Google parent Alphabet Inc. GOOGL, +2.28%.
What’s more, large tech firms like Apple and Meta have relatively low debt burdens, lots of cash on hand, reliable income streams, and management teams that are trusted by Wall Street, Hogan added.
“It also doesn’t hurt that Amazon and Apple are among the best-performing stocks of the last decade,” Forte said.
U.S. stocks DJIA, -0.87% SPX, -0.70% COMP, +0.05% fell sharply on Wednesday as renewed troubles at Swiss banking giant Credit Suisse helped revive worries about how the global banking system is being impacted by central banks’ rate hikes. The Fed has raised its policy rate by nearly 500 basis points over the past year.