The rotation back toward big tech, a partial reversal of widespread weakness throughout 2022, picked up steam after the collapse of Silicon Valley Bank led to contagion worries.Yet while big tech might offer some safety in turbulent times, it isn’t without risks. Valuations are elevated, the earnings outlook looks clouded, while a key factor behind the rebound — falling bond yields — could prove short-lived.
This month’s 6.2 per cent rally means the Nasdaq 100 is now up 19.7 per cent from its December closing low, near the 20 per cent threshold that represents a new bull market. A 17 per cent year-to-date gain compares with one of 3.4 per cent for the SThe rotation back toward big tech, a partial reversal of widespread weakness throughout 2022, picked up steam after the collapse of Silicon Valley Bank led to contagion worries.
Lower yields are beneficial to tech valuations since they enhance the present value of future earnings, but the drop may not be sustainable, especially if it seems like the worst has passed for banks and as the Federal Reserve expects to continue raising rates to fight inflation.