Tech companies catch their breath.. earned 1.3 trillion dollars

Shares of leading US technology companies have rebounded strongly in recent weeks after painful declines in the first half of the year, and investors hope the sector can weather any potential global recession.
Apple, Microsoft, Alphabet, Amazon and Tesla have combined to add $1.3 trillion to their combined market value since the start of July, and these gains have helped the Nasdaq Composite Index rise 14.8 percent over the same period.
But with the Federal Reserve signaling it will maintain its stance of tight monetary policy to tackle severe inflation, some tech analysts warn the stock rally could be short-lived.
Andrew Lapthorne, quantitative strategist at Societe Generale, noted that temporary monthly bounces of 10 percent or more were a “familiar sight” during the 2000-2003 Nasdaq bear market.
Instead, investors should prepare, he said, for deep profit cuts this year and next. He added, “Earnings reports so far for the second quarter have led to significant downward revisions to the Nasdaq 100’s earnings forecast, including a 5.5 percent cut to the 2022 estimate and 6.5 percent to the 2023 forecast. This will write off billions in U.S. tech . companies’ profits.”
But John Gaines, co-director of US Fidelity International, which manages 776 million pounds, said the sell-off in technology shares in the first half showed many investors had trimmed positions early in anticipation of a major earnings slowdown in the sector.
He added, “The situation has now changed. Investors now expect inflation to fall, and they are concerned about the risk of a recession, so economically more sensitive sectors, such as consumer discretionary stocks, underperform.”
Fidelity expects global technology spending to remain healthy, even as companies delay or cancel some projects this year.
“There were good reasons for the boom that spread across the sector before the massive sales,” Guinness said, noting that “a fifth of new cars produced in Europe are now electric cars, so they are computers on wheels .Cloud computing is the development of For real content that is being adopted by many companies,” he said, adding that “the radical transformations that drive technology adoption are still there.”
Retail investors’ view of the sector has been positive since mid-July, according to Morgan Stanley, which analyzes publicly available trading data on companies included in the Russell 3000 index.
“Retail investor participation tends to be higher in sectors like technology and telecommunications services, where there are companies they know and love,” said Boris Lerner, quantitative strategist at Morgan Stanley in New York.
But allocations to exchange-traded funds, a close gauge of sentiment, suggest that broader investors’ appetite for exposure remains weak.
Invesco’s $173.7 billion QQQ exchange-traded fund, which tracks the Nasdaq 100, has taken in $99 million in net inflows since the start of July. But ETFs tracking the broader S&P IT sector saw net outflows of $112 million last month, according to State Street: while Kathy Wood’s Ark Innovation Fund saw net outflows to $385 million.
But some analysts see the long-term case for buying tech stocks as strong, even if there are near-term obstacles.
London-based asset manager Polar Capital warns that profit margins could come under pressure due to inflationary pressures, rising labor costs, supply chain challenges and a stronger US dollar. But it expects global IT spending to increase between 2 and 4 percent in dollars this year.
Ben Rogoff, head of the technology team at Polar Capital, said some of the recent gains may have been driven by “bottom fishing and short covering”, a feature of a temporary rally in a bear market. But the balance between risk and reward for investors has now improved a lot.” He added, “Spending on technology remains an absolute must for companies worldwide.”
There was another recent boost to sentiment when US private equity executive Thoma Bravo agreed to pay $2.8 billion in cash to buy cybersecurity firm Bing Identity at a 63 percent premium to the previous day’s closing price buy.
“There will likely be more acquisitions by private equity managers and it’s somewhat surprising that we haven’t actually seen more strategic buyers (‘mature tech companies’) doing deals,” Rogoff said.
Moreover, declines in the first half only boosted the attractiveness of the technology sector, say optimists. The S&P technology sector traded at a 12-month forward rate for an earnings multiple of 28 at the start of January, but fell to 19.2 at the end of June, according to Refinitiv estimates. Even with the recent gains, it trades at 21.2 times forward earnings.
Jonathan Curtis, co-director of the $7.4 billion Franklin Templeton Technology Fund, noted that the tech sector continues to trade at a premium relative to the U.S. stock market because of its superior fundamentals.
“The current valuation premium for the technology sector is not excessive. It reflects the increase in sector profit margins over the past 12 years, high levels of recurring income and strong long-term growth dynamics,” he said.

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