{"id":1214,"date":"2023-10-15T01:38:06","date_gmt":"2023-10-15T01:38:06","guid":{"rendered":"https:\/\/connectwithfund.com\/markets\/tech-stocks-have-led-the-market-this-year-that-wont-change\/"},"modified":"2023-10-15T01:38:07","modified_gmt":"2023-10-15T01:38:07","slug":"tech-stocks-have-led-the-market-this-year-that-wont-change","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=1214","title":{"rendered":"Tech Stocks Have Led the Market This Year. That Won\u2019t Change."},"content":{"rendered":"
\n

Fat shaming is out of style everywhere but the stock market. Investors should ignore it there, as well. <\/p>\n

We\u2019re talking, of course, about the seven large companies collectively known as Big Tech that make up 29% of the S&P 500 index. As their share prices have increased this year, the consternation about their strength has only grown. It\u2019s almost as if their weighting might be the biggest risk to the stock market\u2014to the point that entire strategies are being designed to help investors avoid the pitfalls that come with having so much invested in so few stocks. <\/p>\n

\n

Never mind that many of the other risks were on display this past week. War has broken out between Israel and Hamas and threatens to spread across the Middle East. Investors were disinclined to buy long-dated Treasuries at an auction on Thursday, causing yields to surge, at least for a day. Inflation remains sticky, according to the latest consumer-price-index reading. None of those were able to keep the stock market down this past week, however. The
\n S&P 500
\n gained 0.45% to push its October gain to 0.9%.<\/p>\n

This is all right on schedule, mind you. Seasonality suggests that stocks should be starting to rally right about now. The S&P 500\u2019s strongest period begins on the 197th trading day of the year\u2014Oct. 13 in 2023\u2014and extends through year end, notes Jay Kaeppel, senior research analyst at SentimenTrader. Over that period, the S&P 500 has risen 70% of the time going back to October 1953, with an average gain of 6.8% when it has risen. <\/p>\n

None of this is to say that the market can\u2019t go down\u201430% of the time stocks fall, after all\u2014but the odds are in investors\u2019 favor. What\u2019s more, there have been 12 periods that saw gains of 10% or more and just two that experienced double-digit declines. Together, that means investors should \u201cgive the bullish case the benefit of the doubt as long as the market is acting reasonably well,\u201d Kaeppel writes. <\/p>\n

One of the two, of course, was Black Monday in 1987, in another bull market led by a handful of stocks, and one that ended with the Dow Jones Industrial Average\u2019s worst one-day loss on record. Comparisons between then and now have started making the rounds, thanks to the rapid rise in bond yields and real interest rates. <\/p>\n

Strategas Research Partners\u2019 Chris Verrone, for instance, wrote about seeing \u201cshades of 1987,\u201d while permabear Albert Edwards of Soci\u00e9t\u00e9 G\u00e9n\u00e9rale added his voice to the choir. \u201cJust like in 1987, any hint of recession now would surely be a devastating blow to equities,\u201d he wrote on Oct. 3. \u201cBut it could be worse: thankfully, we are not in the seasonally most risky month of the year,\u201d he added archly. <\/p>\n

Such comparisons were enough to prompt Ed Clissold, chief U.S. strategist at Ned Davis Research, to rebut them in a note on Friday. While acknowledging the similarities\u2014a strong start to the year, a summer peak, a nearly identical third-quarter pullback, and weakening breadth\u2014he noted the differences, as well. The market\u2019s rally this year was much broader, with plenty of stocks finding themselves in short-term uptrends based on 50-day moving averages. Growth was stronger and accelerating faster in 1987. And even the magnitude of the rate increases isn\u2019t as fast now as it was before Black Monday. <\/p>\n

\u201cWe conclude that while there are several high-level similarities, not enough line up to conclude that a crash-like event is likely,\u201d Clissold writes. <\/p>\n

But if we\u2019re going to give the bullish case for the market the benefit of the doubt, as Kaeppel urged, we also have to give the seven Big Tech companies the benefit of the doubt, as well. As a group,
\n Apple
\n (ticker: AAPL),
\n Microsoft
\n (MSFT),
\n Alphabet
\n (GOOGL),
\n Amazon.com
\n (AMZN),
\n Nvidia
\n (NVDA),
\n Meta Platforms
\n (META), and
\n Tesla
\n (TSLA) have averaged a 95% gain this year. Even the laggards\u2014Microsoft and Apple, up 38% and 37%, respectively\u2014have nearly tripled the S&P 500\u2019s 13% rise. Given their weightings in the index, they\u2019ll have to keep working for the market to head higher. <\/p>\n

That\u2019s not as daunting as it seems. For one, the group is far cheaper than it was at the end of 2021, just before 2022\u2019s big decline. The seven stocks trade for an average of 32.9 times 12-month forward earnings, down from 51.1 at the end of 2021. What\u2019s more, the group is expected to grow earnings this year, as opposed to the beginning of 2022, when earnings were forecast to drop. If anything, investors should be thankful that Big Tech will go a long way toward guaranteeing that S&P 500 earnings will break their slump and grow in the third quarter of 2023.<\/p>\n

\u201cOur view is that 3Q earnings over the coming weeks will be an eye opener for the Street as the transformational AI growth and stabilizing IT spending environment will create a massive tech rally heading into year end in which we expect tech stocks to be up another 12%-15% in 4Q,\u201d writes Wedbush analyst Dan Ives. <\/p>\n

The ever-bullish Ives may be the flip side of SocGen\u2019s Edwards, but you don\u2019t have to be a tech superfan to believe that the Big Seven will continue to lead the market higher. Andrew Slimmon, head of the applied equity advisors team at Morgan Stanley Investment Management, sees the stocks leading the market into the end of the year, thanks to their strong earnings and reasonable valuations. For an active manager, the hardest thing to do is overweight them, although it needs to be done collectively if not individually. \u201cYou have to be overweight,\u201d says Slimmon. \u201cIf they lead and we\u2019re not overweight, that will be a problem.\u201d<\/p>\n

Individual investors don\u2019t have that problem. They just need to own the S&P 500. In other words, it\u2019s time to fatten up.<\/p>\n

Write to <\/strong>Ben Levisohn at Ben.Levisohn@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Fat shaming is out of style everywhere but the stock market. Investors should ignore it there, as well. We\u2019re talking, of course, about the seven large companies collectively known as Big Tech that make up 29% of the S&P 500 index. As their share prices have increased this year, the consternation about their strength has only grown. It\u2019s almost as if their weighting might be the biggest risk to the stock market\u2014to the point that entire strategies are being designed to help investors avoid the pitfalls that come with having so much invested in so few stocks. Never mind that<\/p>\n","protected":false},"author":1,"featured_media":1215,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[],"class_list":["post-1214","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets"],"yoast_head":"\nTech Stocks Have Led the Market This Year. 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