The troubles may have kicked off the latest round of stock market woes, but the tech sector has remained remarkably resilient during the selloff, despite the lender’s ties to Silicon Valley.
It’s clear any way you cut it. Over the last five trading days through Thursday’s close, the S&P 500 is basically break-even, while
Has jumped more than 4%. The tech-stock index has climbed nearly 16% year to date, helped by its January rally, compared with just over 3% for
Sector exchange-traded funds tell the same story. in the last week
Technology Select Sector SPDR Fund
(ticker: XLK) is up 4.1%, which puts it up nearly 17% for the year.
Even the biggest tech companies have performed the same. poster child shares
(AAPL) is up 3.8% over the past five days, taking the stock up 25% so far in 2023;
(MSFT) is up 9.9% and 15.3% in those periods. Similar to Google Guardian
(GOOGL) stock is up 8.8% this week and 12.6% this year.
The tech sector’s gains are in stark contrast to the beleaguered financial industry. For example, the Financials Select Sector SPDR Fund (XLF) has fallen 3.5% and 6.7%, respectively, over the past five days. no wonder
SPDR S&P Bank ETF
(KBE) has been hit even harder, down 8.5% over the past five days. Before this week, it had been in the black for 2023; Now it’s down about 16% for the year.
There are a few reasons tech stocks are on the rise despite the collapse of one of the sector’s favorite lenders. The tech still has momentum from earlier this year, and it’s still in the works for fall 2022.
However, perhaps most important, is that big tech parts can look very defensible — especially relative to shakier regional banks or cash-hungry start-ups that are still chasing profitability. It may seem counterintuitive given the sector’s reputation for growth, but if you’re looking for safety of cash, big tech has it in spades.
Apple is famous for its fortress-like balance sheet, backed with so much cash it’s actually been called problematic (a problem we all wish we had). At its fiscal 2022 year-end in September, free cash flow was up nearly 20% year over year to $111.44 billion.
Similarly, when Microsoft’s fiscal year closed at the end of June, the company had $65 billion of free cash flow on its books. Alphabet ended 2022 with $60 billion in free cash flow, nearly double the level it had at the end of 2019.
Of course, those companies aren’t immune to the macroeconomic environment: In a recession, fewer people can upgrade their iPhones or invest in new tech devices or services. Nonetheless, some analysts doubt the long-term dominance and resilience of these firms. Big tech’s pile of cash also means that these companies don’t have to rely on lenders like Silicon Valley banks or venture capitalists – unlike start-ups – nor do they need to raise capital when interest rates are low. There are still more.
For investors looking for gold this St. Patrick’s Day, big tech could be a place to watch.
Write to Teresa Rivas at [email protected]