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.

  APPL NAS 100, bank, DB, earnings, Fed, goog, investors, money, MSFT, S&P 500, stocks, technology, valuations

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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