Big tech breakouts: Apple leads rally after rough start to 2022
Apple Inc. boosted its earnings Tuesday on a winning streak seen nearly two decades ago as enhanced risk sentiment sent investors back to the biggest US tech companies.
Apple rose for the 11th consecutive day in New York and closed at $178.96, up 1.9%, roughly $3 off a record high reached in early January. The longest winning streak since 2003 sent the stock back to the green for the year, and Nvidia Corp. and Amazon.com Inc. followed similar breakouts last week.
“What we’re seeing is the gap between companies that perform exceptionally well and those whose futures are more difficult to measure,” said Ross Gerber, CEO of Gerber Kawasaki Inc. “People are betting on companies whose earnings are increasing. fastest in time.”
While expectations of some withdrawal from the war in Ukraine increased risk sensitivity, attention was turned to Apple’s profit outlook. Analysts have increased their earnings per share estimates by 8.6% so far this year, while those for the S&P 500 are up 4.6%, according to data compiled by Bloomberg.
Investors also largely skipped Nikkei’s report of production cuts, leaving the stock at a striking $3 trillion market cap.
The recent rally comes after a rough start of the year for big tech whose marquee names have fallen behind the broader market as the Federal Reserve signals that it will raise interest rates several times over. Higher interest rates hurt growth stocks with higher valuations, including technology, hurting the present value of future profits.
However, investors who initially fled the industry began to return in the belief that big tech companies with discounts and strong balance sheets and broad exposure to fast-growing markets such as cloud computing could continue to reap greater profits.
“Sales have been overstated and have reduced these big tech names to very attractive levels,” said David Katz, chief investment officer at Matrix Asset Advisors. “Apple is a very strong and dynamic growth company and is on the best side of the pack in valuation.”
Among other Nasdaq 100 pioneers, Amazon rose 0.2% on Tuesday, while Alphabet Inc. 0.7% and Microsoft Corp. It gained 1.5%. Despite this week’s recovery, the Nasdaq is down nearly 7% for 100 years.
The massive tech rally amid rising interest rates has some investors scratching their heads. The yield on 10-year US Treasuries rose more than 50 basis points to 2.39% this month.
Lisa Shalett, chief investment officer at Wealth Management at Morgan Stanley, wrote that progress on the education-heavy Nasdaq 100 has been “confusing” as it comes in a time of higher interest rates as the Fed takes steps to combat inflation.
According to Bill Stone, chief investment officer of Glenview Trust Co., the rise in big tech is a matter of investors looking to add to their portfolios after the sale and looking for stocks with the highest return on capital and low debt.
“People go shopping, and they’re definitely the first thing people will look at,” he said. “We tell our customers to switch to quality if we go into recession. “Companies with low debt and high return on capital will not suffer as much.”