How Big Tech Became the New Defensive Stock Play

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Crises make strange companions. Just look at the new class of defensive stocks: utilities, consumer staples, healthcare- and Big Tech.

during the last week,

Technology Sector Select SPDR
The exchange-traded fund (ticker: XLK) was the market’s best performer, rising 6.3%, followed by a 6.1% gain.

Select Communication Services Sector SPDR
ETF (XLC). defensive

Select Utilities Sector SPDR
ETF (XLU) climbed 4.1%, followed by

Consumer Discretionary Select Sector SPDR
ETF’s (XLY) 3.6% gain.

In reality, though, technology did most of the heavy lifting. Looking at sector divisions, XLC includes big tech names like Google parent

Alphabet

(GOOGL) and Facebook parent

meta platform

(META), which gained 12.8% and 10% respectively last week, while XLY is home to

Amazon.Com

(AMZN), up 10.1% for the week, and

Tesla

(TSLA), which rose 7.5%.

That makes three of the four best-performing sectors this week tech-focused, even as big market swings from banking concerns sent investors scrambling for cover in relative safe havens. In addition to the rise of utilities,

Health Care Select Sector SPDR
ETF (XLV) climbed 1.7% and

Select Consumer Staples Sector SPDR
The ETF (XLP) added 1.5%, making them the fifth and sixth best performers. Similarly, gold prices rose nearly 6%, their biggest one-week percentage increase in nearly three years, and silver was similarly strong.

That’s a remarkable turnaround from what investors expected: In 2022, like many other bear markets, riskier growth-oriented sectors like tech rallied as investors sought stable Eddie casts in the workday.

Yet it makes sense that unlike start-ups, Big Tech players prefer

Apple

(AAPL), Alphabet, and

Microsoft

(MSFT) has huge cash reserves which makes them less exposed to balance-sheet slippages. The former two also pay a small dividend—once an anathema to tech, but part of the appeal of defensive plays like utilities and staples.

Besides, their livelihood business does not seem to face any threat from the banking crisis. On Friday, KeyBanc Capital Markets analyst John Vinh said iPhone and Apple hardware sales in February were “modestly better than normal seasonality, reflecting resilient demand and improving supply.”

Similarly, Morningstar analyst Ali Mograbi wrote earlier this week that the outcome of the turmoil “should not have a material impact on the online media or advertising firms under our coverage and we adjust our fair value estimates on these stocks.” Not doing.”

He notes that Google’s cloud storage revenue will be down less than 10% and have minimal impact on the company’s overall profitability, given what will be a resumption of venture-capital funding for start-ups next year.

At the same time, this dynamic—which has provided such lift for Big Tech—is also clearly positive for consumer staples, a rare occurrence.

While Staples is benefiting from the conspicuous flight to safety, it’s also comforted by the fact it doesn’t have ties to troubled institutions like Silicon Valley banks, as some of its rivals did.

,[A] A fair number of industry start-ups were at risk for SVBs and apart from the associated short-term disruption, a tightening of subsequent lending standards and greater emphasis on free cash/profitability can be expected, making it easier for smaller companies may be limited. Get financing and enter the industry,” wrote analyst John Baumgartner at Mizuho Securities.

If nothing else, the past few years have taught investors to expect the unexpected. Right now, at least, both iPhones and ice cream are providing shelter from the storm.

Write to Teresa Rivas at [email protected]