Investors are gravitating toward big technology stocks as banking crisis worries rock U.S. markets.
Hoping the shares are better positioned to withstand a possible economic downturn and will benefit from a steep drop in bond yields.
As of Wednesday, the S&P 500 technology sector (.SPLRCT) was down 1.7% compared to a 3.6% drop for the broader benchmark stock index (.SPX) since March 8, when problems at Silicon Valley Bank set off fears of financial system contagion. Among the big tech stocks, Apple Inc (AAPL.O) has fallen 1.5% over that time, while Microsoft Corp (MSFT.O) climbed 3.4% and Intel Corp (INTC.O) rose over 7%.
Large tech stocks generally screen well on “quality” metrics, such as balance sheet strength and profit margins, heightening their allure when economic uncertainty arises, said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
With investors “starting to price in solvency risk or the potential of companies needing capital, the market is rewarding those that don’t need capital to survive,” he said.
The relative strength in tech, the biggest S&P 500 sector with a 28% weighting in the index, has helped take the edge off a broader decline in stocks fueled by fears that financial system disruptions and tighter monetary policy will hurt U.S. growth.
The S&P 500 was down 1.6% on Wednesday afternoon, having nearly erased its year-to-date gain as financial stability concerns spread to Europe, hammering the shares of embattled Credit Suisse (CSGN.S) and other lenders.
A swift tumble in Treasury yields is also helping boost tech stocks. Tech shares were pummeled in 2022 as the Federal Reserve’s aggressive rate hikes drove up Treasury yields, hurting “long duration” assets such as tech stocks.
That move has reversed dramatically in recent days amid extreme volatility in the bond market. Yields on two-year U.S. Treasuries on Wednesday fell to their lowest since September.
Shares of utilities, consumer staples and healthcare – typically seen as more able to weather tough economic times – have also held up better than broader markets, though they carry a much smaller weighting in the S&P 500 than tech stocks.
The utilities sector (.SPLRCU) has climbed 1% since last Wednesday, consumer staples (.SPLRCS) has slipped 0.5%, while healthcare (.SPXHC) has dipped 1%.