US Technology Companies Outperformed Since June
$AAPL, $GOOG, $MSFT, $DB
US technology companies have outperformed since June, beating the S&P 500 Index by the biggest margin since the Bull Market began on 9 March 2009.
Their influence lifted the broad market to the 4h straight Quarterly gainer and its biggest of Y 2016, with the benchmark gauge rallying 3.3% in the Q ended Friday.
Apple Inc.(NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG), and Microsoft Corp. (NASDAQ:MSFT) rose at least 12% in Q-3 while the NAS 100 Index rose 10%, the most since Y 2013. As of Friday, tech companies in the index beat the S&P 500 by 9.1% according to data.
The allure was valuations
Computer and software stocks began the Quarter with lower P/E ratios than their counterparts in the utility, telecommunication and consumer staples industries.
Signs the US Fed was not going to raise interest-rate anytime soon fueled risk appetites, sending the NAS 100 to 7 straight weekly gainers to start the Quarter.
Hedge funds benefited tech’s Q-3 surge.
Of the Top 20 stock holdings at the 150 largest hedge funds, half were tech companies, according to a report by Bank of America Corp. analysts. That led to the group of so-called core holdings beating the S&P 500 by 6.4%, the most for any Quarter since the firm started compiling data in Y 2011, they said.
The equity rotation into riskier assets since June has spread out gains among stocks.
In mid-September, that pushed a version of the S&P 500 that strips out market-value biases to its best performance versus the standard gauge since Y 2013.
The switch is occurring amid a growing valuation gap that made losers too cheap to pass up in a market where the S&P 500 is trading at 1 of the highest multiples since the dot-come era.
At their peak in July, utilities fetched 19X forecast earnings, compared with a ratio of 18X for the broader benchmark. At that point they were 13% more expensive than tech stocks, now they are 17% cheaper.
Now investors will turn attention to the corporate earnings season that gets underway in 2 weeks, with technology companies expected to report profits 3.3% higher than a year ago, according to analysts surveyed.
The broader S&P 500 is forecast to see profit contraction of 1.5%, which would be its 6th Quarter running without earnings growth.
Investors will be closely watching for any developments relating to Deutsche Bank AG (NYSE:DB), which roiled markets in the final week of the Quarter. The Big German Bank marked a record low Thursday on growing concern among some of the bank’s clients after the US Department of Justice earlier in the month said it would seek a $14-B fine for issues dating back to the Y 2008 financial crisis.
It is reported today that a deal was struck for $5.4-B, so much for the US Governments anti-business PR machine.
The stock rebounded, but expect about a $10-B companation of equity and debt from DB in the near future.
Have a terrific weekend.
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Paul Ebeling
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