Tech Megacaps Lead Strong First-Half Rally and Apple Hits $3 Trillion Milestone
The tech megacap stocks have continued their impressive rally, with the Nasdaq 100 experiencing its best first-half performance ever, and Apple Inc. achieving a significant milestone by surpassing a $3 trillion valuation.
Investors have remained optimistic despite concerns over inflation and economic growth, taking a positive view of recent data indicating that inflation is moderating. This has led to a further surge in equities, particularly in the technology sector, which has solidified its leadership role in the market amid the growing prominence of artificial intelligence (AI).
Big banks also saw a boost in their stock prices after passing the Federal Reserve’s stress test, with JPMorgan Chase & Co., Wells Fargo & Co., Morgan Stanley, and Goldman Sachs Group Inc. announcing higher dividends after the market closed.
Since the beginning of the year, nearly $5 trillion has been added to the value of companies in the Nasdaq 100 index, defying bubble warnings and recording a nearly 40% jump. This strong performance has also contributed to a 16% increase in the broader S&P 500 index in 2023. The gains have been even more remarkable among the megacap tech stocks, which have soared by an impressive 74%.
Larry Adam, the chief investment officer at Raymond James, expressed his confidence in the tech sector, stating, “I still do like big tech… I do believe in technology continuing to reinvent itself — obviously with the latest addition being AI. That’ll continue to drive earnings.”
The “Big Seven” tech companies, including Apple, Microsoft Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Nvidia Corp., and Tesla Inc., were able to increase their profits annually by 14% throughout the 2012-2022 decade. Despite a decline in earnings by more than 20% last year, these companies are expected to make a swift recovery.
On Friday, the Nasdaq 100 rose by over 1.5%, and the S&P 500 reached its highest level since April 2022. This strong performance puts the US equity benchmark on track for its best first half since 2019, instilling optimism for the rest of 2023.
Historically, strong first-half performances in the Nasdaq 100 have indicated positive returns for the second half of the year. Data compiled by Bloomberg reveals that years that start with at least a 10% rally in the index have averaged returns of approximately 14% in the second half. However, if the first-half gains exceed 20%, the average return in the second half shrinks to 8.3%.
While concerns about valuations are growing, leading to a surge in bearish bets against the largest tech companies, experts maintain a positive outlook on AI-related stocks. Sundeep Gantori, equity strategist at UBS Global Wealth Management, advises investors to be selective in this area while favoring mid-cycle industries and tech laggards due to better risk-reward opportunities.
As the bond market remained subdued, tech stocks were further supported. Treasury 10-year yields fell to around 3.8%, and the US dollar continued its losses. Key measures of US inflation cooled in May, and consumer spending stagnated, suggesting a potential loss of momentum in the economy. This data may lead the Federal Reserve to reconsider its rate hike plans, which would be positive for big tech companies.
Overall, the strong rally in tech megacaps and the increasing importance of AI have outshined concerns about potential market downturns. While comparisons have been drawn to the dot-com bubble of 2000, experts believe that earnings growth in the tech sector will prove the staying power of this trend.