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.
Shares of America’s tech behemoths have been buoyant so far in 2023. Apple Inc. AAPL stocks have risen nearly 35% this year, putting its market capitalization surpassing that of the entire Russell 2000 RUT for two weeks, the longest stretch on record, according to Bloomberg data shared with MarketWatch. Meta Platforms Inc. META has jumped 104.1% year-to-date and Google’s parent, Alphabet Inc., GOOGL has advanced 39.1% over the same period, according to FactSet Data.
Strong balance sheet and durable revenue streams Megacap results in this past quarterly earnings reporting season seem to be taken as confirmation that the sector can continue delivering strong growth, given their rock-solid balance sheets, strong cash-flow generation and robust profit margins. A potential end to Fed rate hikes Signs that U.S. inflation is starting to moderate and the Federal Reserve is nearing the end of its interest rate hiking cycle also contributed to the tech leadership, said market analysts.
“We’re in a hype cycle here around AI, which has created a halo around a lot of key stocks in the tech sector, and that’s been sort of the icing on the cake,” Porter said. “As a result, many investors have become increasingly worried about the potential effects that this top-heavy concentration could have on market performance, especially if these names begin to stumble,” Belski wrote in a Thursday note.
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