Big Tech has powered the ferocious stock market rebound from the coronavirus sell-off, defying expectations that an economic downturn would bring an end to investors’ love affair with fast-growing but expensively priced stocks.
This stretched valuations. A key measure of that — the ratio between the Nasdaq 100 companies’ share prices and expected earnings — rose to more than 25 at the start of this year, against a 10-year average of 19, according to S&P Capital IQ figures. . With millions cooped up at home, companies like online retailing giant Amazon and internet streaming service Netflix are clear winners. They are both up about 30 per cent so far this year. Zoom, the video conferencing company, is another victor, doubling in value in 2020. Microsoft, which has also benefited from the video-calling boom, is up more than 10 per cent. Google, Apple and Facebook are also now roughly flat for the year, after each falling more than 30 per cent from the February highs.
“Narrow breadth can last for extended periods, but past episodes have signalled below-average market returns and eventual momentum reversals,” David Kostin, chief U.S. equity strategist, warned this week. The April rally has also been helped by a huge comeback from beaten-up energy stocks, as investors have bet that some of the gloom surrounding the industry is overdone. Despite U.S. oil prices briefly plunging into negative territory last month, energy is the best-performing sector of the U.S. equity market this month, up about 30 per cent.
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