Technology stocks like Microsoft and Apple are outperforming the S&P 500 by the widest margin in years

7:48 am ET March 22, 2023 (MarketWatch) Print

By Joseph Adinolfi

Megacap technology stocks like Amazon.com Inc., Microsoft Corp. (MSFT) and Apple Inc. have outperformed the broader market by the widest margin in years following the collapse of Silicon Valley Bank and two other U.S. lenders.

The New York Stock Exchange FANG+ Index , which aims to measure the performance of some of the largest, most liquid U.S. stocks including Apple Inc.(AAPL), Amazon (AMZN), Netflix Inc. (NFLX), Facebook parent Meta Platforms Inc.(META) and Google parent Alphabet Inc. (GOOGL)(GOOGL), has risen 6% during the week through Tuesday, compared with a gain of 1.9% for the S&P 500, according to FactSet data.

The index also includes shares of Tesla Inc. (TSLA) and NVIDIA Corp. (NVDA)

One analyst who compared the performance of megacap tech names against the average S&P 500 stock, helping to underscore the magnitude of the so-called "FANG" stocks' outperformance.

According to an analysis by Alex Atanasiu, a portfolio manager at Glenmede Investment Management, investors scrambling into the perceived safety of megacap technology names caused the cap-weighted S&P 500 index to outperform the average S&P 500 constituent stock by more than 3% last week.

That's one of the widest five-session margins of outperformance for the cap-weighted index since 1990, according to Atanasiu, who said that comparing the performance of the cap-weighted index to the performance of the average S&P 500 stock is one way to gauge how the largest U.S. stocks are performing relative to the average member of the S&P 500.

In another sign of how the largest technology names are performing relative to the broader market, the Nasdaq 100 outperformed the S&P 500 during the 12 sessions through Friday. That's the longest streak since 2017, according to an analysis by eToro analyst Callie Cox.

That streak came to an end on Monday when the S&P 500 outperformed the Nasdaq 100 and Nasdaq Composite . However, the Nasdaq outperformed both the S&P 500 and Dow Jones Industrial Average once again on Tuesday.

"This flight to mega caps is part of a larger escape by investors towards perceived 'safety,'" Atanasiu said in a note emailed to MarketWatch.

The biggest tech stocks have outperformed value-focused names, like the constituents of the Dow Jones Industrial Average, by an even wider margin, according to FactSet data.

The Nasdaq Composite managed to outperform the Dow by 4.6% during the week ended Friday, its widest margin of outperformance since March 20, 2020, according to Dow Jones Market Data.

Expectations that the Federal Reserve might repeatedly cut interest rates before the end of 2023 have helped bolster shares of tech names, which tend to be more sensitive to changes in interest rates than value stocks. Some examples of value stocks include Dow components like Boeing Company (BA) and 3M Company (MMM).

"I think the key driver of the recent rally in technology companies has everything to do with changing expectations about interest rates. Interest rates can heavily influence the multiple that you can ascribe to fast-growing technology companies," said Art Hogan, chief market strategist at B. Riley Wealth, in a phone call with MarketWatch last week.

These companies also tend to have relatively low debt burdens, lots of cash on hand, reliable income streams, and management teams that are trusted by Wall Street, Hogan pointed out.

Many of the so-called "FAANG" or "FAAMG" stocks -- acronyms that stand for "Facebook, Apple, Amazon, Netflix and Google" and "Facebook, Apple, Amazon, Microsoft and Google" -- suffered large losses in 2022 as the Nasdaq Composite fell more than 30%, according to FactSet data.

That marked a stark departure from their performance over the prior decade, a period characterized by rock-bottom interest rates that saw stocks like Apple, Amazon and Tesla lead stock-market higher.

However, the Nasdaq resumed its leadership position in 2023, a sign that it had become oversold in 2022, Hogan said.

-Joseph Adinolfi

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March 22, 2023 07:48 ET (11:48 GMT)