Even if the Federal Reserve raises interest rates and sends technology stocks tumbling, it will only make it harder to stay out of this sector.
On the other hand, there is a lot of good news. The Nasdaq 100 Index is 35% cheaper than its 2020 peak, giants like Apple still have money in the bank, and earnings prospects show no signs of a major slowdown.
The index fell 0.8% on Thursday and is down about 30% this year.
The Fed, however. Heading into Wednesday’s monetary policy meeting, some in the market were saying that a bailout rally in tech was likely if the central bank raised its benchmark interest rate by 75 basis points, as expected. But it turned out not to be that easy, as the Fed was more hawkish than expected, sending the Nasdaq 100 down to early July lows and wiping out much of the summer’s gains.
So, when the dust settles, how about avoiding high-tech? That is not an option for many institutional investors, as this industry is the largest, accounting for about 27% of the S&P 500 Index. If high-tech stocks turn around and you miss the upside, your career could be over.
That’s why stock investors are drawn to “blue chip” companies with durable businesses and stock charts. Apple Inc. is down just 13% this year; T-Mobile US Inc, cybersecurity Palo Alto Networks Inc, and chipmaker Texas Instrument Inc. are a few companies that have outperformed their peers in the tech sector.
The idea is to look for companies with high market share, good moats, and low replacement risk,” said Brian Battle, trading director at Performance Trust Capital Partners Inc. Microsoft makes what people pay for.” Microsoft makes what people pay for. Apple sells billions of consumer goods and is hard to replace.
Companies that do not have such attributes are getting hammered in the stock market. For example, ad-dependent Facebook owner Meta Platforms Inc., which has lost 58% of its value since the beginning of this year; Snap Inc, owner of Snapchat; and streaming video company Netflix Inc. are in a similar situation.
As long as real yields in the bond market continue to rise, tech stocks probably haven’t bottomed, and we would argue that buying into the Nasdaq 100 should be reserved. The earnings multiple on this index is down quite a bit, but it is down from very inflated levels. However, stock seekers are finding buying opportunities in high tech.
Alec Young, the chief investment strategist at quantitative research firm MapSignals, says, “So it’s cheaper, but it’s not cheap yet.” Until the Fed feels it can pause tightening, tech is unlikely to be a leader sector.”