Investors eye Big Tech as stock market wobbles

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NEW YORK, Oct 5 (Businesshala) – Technology stocks have been bearing the brunt of a recent market sell-off, highlighting how an extended recession in the sector could impact broader equity indices.

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Following Monday’s sharp drop, the S&P 500 technology sector (.SPLRCT) is down 6.7% as the S&P 500 closed on a record on Sept. 2, compared to a 5.2% drop for the broader index at the time. . (.n)

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Meanwhile, the tech-heavy Nasdaq Composite (.IXIC), down 7.3% from its September 7 high, is close to marking a 10% correction.

The fall comes amid a slew of market concerns in recent weeks, including the Federal Reserve’s easier money policies, a spurt in Treasury yields and a tumultuous battle between lawmakers over US debt limits.

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Many investors are hesitant to cut their exposure to technology-focused stocks, which have led most markets over the past decade and are expected to deliver strong earnings growth even when the economic environment turns rough. Past declines in previous years have often been met with furious buying.

Still, the heavy weighting of broad indices, comparatively high valuations and widespread ownership have led some investors to worry about the consequences of prolonged poor performance for tech and tech-related names.

Here are some metrics investors are studying as they weigh whether to stay the course in the technology or withdraw their holdings:

crowded business

Years of solid performance have made tech stocks a mainstay in Wall Street’s portfolios, periodically raising concerns that investors would be susceptible to violent market swings if they tried to sell all at once. can be.

Facebook (FB.O), Amazon (AMZN.O), Microsoft (MSFT.O) and Google-parent Alphabet (GOOGL.O) have ranked among the top five most popular hedge fund long positions for the past 15 consecutive quarters. A study by Goldman Sachs revealed.

At the same time, 40% of fund managers surveyed by BofA Global Research in September said buying US technology stocks was the market’s most crowded trade, a designation tech stocks have received for three straight months.

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S&P 500. weight in

The tech sector itself holds a 27.7% weighting in the S&P 500, which is more than twice that of the number two sector, healthcare (.SPXHC). Adding four tech-related companies that are in other sectors — Alphabet, Amazon, Facebook and Netflix (NFLX.o) — raises that weight to 38.8%.

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Valuation

According to Refinitiv Datastream, the technology sector trades at 25.8 times forward 12-month earnings estimates, compared to 20.7 times for the overall S&P 500.

Although growth and technology stocks have generally commanded higher valuations in recent years, some market participants worry that the category’s reputation for delivering year-over-year gains has helped push their prices past those levels. which can be justified by the basic principles.

Forward P/E Ratio

Income

Tech sector earnings last year fared better than the broader market as the coronavirus pandemic wreaked havoc on the broader economic front. As the world emerges from lockdown this year, tech’s profit growth hasn’t been as strong as that of the S&P 500 companies.

Businesshala Graphics
Reporting by Louise Kruskoff; Editing by Ira Iosebashvili and Richard Pullin

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