Just 20 stocks account for almost 90 per cent of the US benchmark index’s $2.36tn gains so far this year, as instability in the banking sector has driven down interest rate expectations and boosted the attraction of Big Tech.
Among the big gainers, shares in chipmaker Nvidia have climbed by 83 per cent so far this year, while Facebook owner Meta is up 76 per cent and Salesforce has climbed 42 per cent, underlining the heavy concentration in the world’s most influential stock market.
The market value of those and the other 17 best performing stocks in the S&P 500 have surged by $2.05tn in 2023. Apple’s valuation alone has shot up by almost $600bn, or 30 per cent, in the past three months.
The market capitalisation of the other stocks in the index — which is up almost 7 per cent so far in 2023 — has risen just $320bn over the same period, according to private equity firm Apollo Global Management.
Ignoring gains for megacap growth stocks, the S&P 500 rose just 1.4 per cent in the first three months of 2023, said UBS.
“People are looking for safety and comfort given the cross-currents in the market, and tech gives them plenty of ease,” said JPMorgan sales trader Jack Atherton. Noting the well-worn phrase that “whenever the Fed hits the brakes, someone goes through the windshield”, he added that megacap tech appears to be “wearing an eight-point harness”.
US technology companies in particular were left battered by rising borrowing costs in 2022, with the tech-heavy Nasdaq Composite tumbling a third from an all-time high as the present value of tech groups’ future cash flows declined.
The US Federal Reserve has continued to increase rates in 2023, but the fallout from the collapse of California-based Silicon Valley Bank in March is expected by some investors to tighten lending standards and cool economic activity to such an extent that further aggressive rate rises are no longer necessary.
Turmoil in the banking sector has lopped half a percentage point off the level at which investors expect rates to peak, with markets now split on whether the Fed will lift rates by 0.25 percentage points to a target range between 5 and 5.25 per cent or leave them unchanged when it next meets in early May. One month ago, before the failure of SVB, investors had expected rates to peak at about 5.5 per cent in September.
Technology stocks have been among the main beneficiaries of this recalibration. Many of those that suffered in 2022 but dominate US equity indices are now “exploding higher on the violent rates reset”, said Charlie McElligott, analyst at Nomura.
High inflation means the zero interest rate environment that spurred tech stocks to record highs in 2021 is unlikely to return any time soon, however, and the sector’s nascent rally may already be fading. Analysts at Bank of America have noted the first aggregate outflows from tech stocks in six weeks in the five days to March 31.