Market Snapshot: Megacap tech stocks out of control? Big Tech still has the power to extend the rally and weather an economic storm, analysts say.

by | May 21, 2023 | Stock Market

Megacap technology stocks have dominated the U.S. stock market performance this year, powering the Nasdaq Composite to a new nine-month high this week as investors have loaded up on them in a “safe-haven play” on concerns over a potential recession, a federal debt-ceiling breach and more stress in regional banks. The tech-focused Nasdaq-100 index
which tracks the top 100 non-financial companies listed on the Nasdaq exchange, on Thursday ended at its highest level since April 2022. The index rose 3.5% this week and has advanced more than 26% year-to-date, according to FactSet Data.

Meanwhile, the Nasdaq Composite
gained over 3% on a weekly basis. The tech-heavy gauge has risen 20.9% so far in 2023, according to FactSet Data. That compares with a 9.2% year-over-year gain for the broader S&P 500 index
and a merely 0.8% increase for the Dow Jones Industrial Average
  Shares of America’s tech behemoths have been buoyant so far in 2023. Apple Inc.
stocks have risen nearly 35% this year, putting its market capitalization surpassing that of the entire Russell 2000
for two weeks, the longest stretch on record, according to Bloomberg data shared with MarketWatch. Meta Platforms Inc.
has jumped 104.1% year-to-date and Google’s parent, Alphabet Inc.,
has advanced 39.1% over the same period, according to FactSet Data. See: A stock-market milestone: Apple is now worth more than the entire Russell 2000 MarketWatch spoke with analysts to explore what factors have resulted in technology stocks being the dominant force in the U.S. equity market in 2023, and what drawbacks they could have this year. A reversion of the 2022 trades First, investors were very cautious with low expectations for the tech sector coming into 2023 after the bear market of 2022, which is “a good starting point for a group to outperform when there are skeptics that give you a chance to prove them wrong,” said John Porter, chief investment officer and head of equity at Newton Investment Management.  The Nasdaq Composite slumped nearly 33% in 2022 as the high-growth nature of stocks in the tech-heavy index left them particularly vulnerable to the rise in interest rates engineered by the Federal Reserve to combat inflation. “They’re considered growth stocks, and people are willing to pay a higher valuation as they’re expected to grow,” said Mike Dickson, head of research and product development at Horizon Investments. “Looking backwards on a year-over-year basis, they actually haven’t been growing, but from an expectation standpoint, it does appear that right now is probably the trough for earnings unless we get very bad growth prospects going forward.” Strong balance sheet and durable …

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