On Wall Street, everything seems to smile to technological values, which have contributed in large part to the impressive stock market rebound in the second quarter and continue to lead the Nasdaq to new heights.
The index to strong staining technology of the place in new york, who has climbed 18% since the beginning of the year, was crossed on Friday at the close of its 27th record high in 2020.
“The tech has been the primary fuel of the strong recovery that took place after the plunge in march”, stresses Daniel Ives, a financial analyst for Wedbush Securities.
“The pandemic of Covid-19 has accelerated the rise in power of the sectors of the cloud (cloud computing, editor’s note), and consumer technology, as well as one of the pillars that are the GAFAM,” he continued.
These five Internet giants (Google, Apple, Facebook, Amazon and Microsoft), which alone account for more than a quarter of the market value cumulative of the 500 largest firms of Wall Street, have all seen their shares take off, and their capitalization swell between April and June.
At the same time, the emblematic names of areas hit by the consequences of the pandemic have been removed from the expanded index S&P 500, considered the most representative of the u.s. Stock market. This has been the case of department store chain macy’s in April or the manufacturer of motorcycles Harley Davidson in June.
According to Howard Silverblatt, a specialist of the indices at S&P Dow Jones Indices, the natural evolution of the S&P 500 should the drive to integrate more and more technology stocks.
“At a certain moment, the index should respond to the market and the economy. If there are significant changes, it must reflect,” says Mr. Silverblatt.
The sub-index “information technology” of the S&P 500 (which does not, however, Facebook, Google, and Amazon) currently represents about 28% of the S&P 500, compared to less than 19% a decade ago.
In an environment that provides few guarantees about the future, many technology companies have prospects of growth and income to reassure investors. They will have the opportunity to demonstrate this in the next few weeks when they release their quarterly results.
These guarantees are, according to Mr. Ives, what differentiates the current rise in the industry, and the Internet bubble of the late 1990s.
“The valuations today are justified by the fundamental factors of growth, the opposite of the values totally illusory than it was 20 years ago,” emphasizes the expert.
The case of the manufacturer of premium electric vehicles, Tesla, became the beginning of July, the automaker’s most expensive Stock market in the world ahead of Toyota, is emblematic in this respect.
The company’s book certainly a lot less cars than groups such as GM, Ford or Fiat-Chrysler, but investors are interested to advantage the technological prowess of the models of the california firm and to the increasing share of electric cars on the automotive market.
“This is the world of Tesla, and all the others pay the rent,” says Mr. Ives.
The containment measures and the generalization of telework have also benefited several names in tech these last few months, including the service of video conferencing Zoom, the streaming platform Netflix or the video game publisher Activision Blizzard.
“There is the idea that these companies are important today and that it will remain after the pandemic,” says Quincy Krosby, head of market strategy at Prudential.
A sustained recovery in u.s. economic activity could, however, impede the tremendous increase in Stock market sector.
“Every time the economy has shown signs of restarting, we saw profit-taking on the side of the big names of the tech and a reinvestment of this money into the finance or the goods and services”, said Ms. Krosby.
Threats-political and judicial, which is weighing on the heavyweights of the Internet are another potential source of concern, even if they do have, until now, not to panic investors.
The bosses of Google, Apple, Facebook and Amazon will be questioned on the 27 July by american congressmen in the framework of an investigation on possible anti-competitive practices.
“On the 27th of July will be an important date to know if it is a show policy or if it is the beginning of something bigger for the dismantling of these companies,” observes Daniel Ives.
According to the expert, a change of administration in Washington, with a victory for Joe Biden in the face to Donald Trump in November during the presidential election, could change the game and make the market less sanguine in respect of these tech giants.