Megacap Tech Stocks Microsoft, Apple, And Meta Outperform Amid SVB Chaos

In the wake of Silicon Valley Bank's collapse, many startup businesses banked at the bank, investors are seeking relief from this week's stock market volatility in shares of established technology companies.

‍

It has made a serious impact on bond and equity markets as the collapse of SVB and two other U.S. banks has shaken the entire banking system.

‍

As the S&P 500 briefly went negative to start the year, Trade Algo data indicate that the biggest semiconductor and technology names are outperforming, helping to limit losses on the Nasdaq 100, represented by Invesco QQQ ETFs (QQQ). Many of the largest tech companies, including Apple Inc. (AAPL), Meta Platforms Inc. (META), and Microsoft Corp., rallied late Wednesday afternoon, helping both the Nasdaq Composite and Nasdaq 100 finish higher. As for the S&P 500 and Dow Jones Industrial Average, they ended in the red, despite holding higher levels from earlier in the day.

‍

The mega-cap technology names have been undergoing a flight to quality, says Tom Forte, an equity analyst at Dalton Davidson specializing in the technology sector.

‍

In the two days since markets opened on Monday, Apple Inc. shares have risen 2.3%. The shares of Microsoft Corporation (MSFT) have gained 6.3%, while Meta Platforms Inc. has gained nearly 1.1% since its layoffs were announced on Monday. NFLX (NFLX) and TSLA (TSLA) both have gained roughly 3.5% in the past week.

‍

Through Wednesday's close, Intel Corp and Nvidia Corp. (NVDA) rose roughly 4% each.

‍

An analysis by eToro's Callie Cox shows the Nasdaq 100 has been outperforming the S&P 500 for a total of 10 straight trading sessions. Wednesday saw an increase of 0.4% in the index.

‍

It's no secret that technology stocks are outperforming the rest of the market since Jan. 1: the Nasdaq increased by over 8.5% during that period, compared with the Dow declining by 4.3%.

‍

A speculative name with little or no profit to speak of has outperformed more risky tech names. A benchmark for speculative technology names, Ark Innovation ETF (ARKK), has gained over 20% year-to-date. As mega-cap names have outperformed ARK so far this week, its leadership in the tech sector has begun to falter.

‍

According to analysts, the larger technology names have been able to take the lead due to several factors.

‍

Fed funds futures traders have begun pricing in a 100 basis point rate cut by the Federal Reserve before the end of the year in the last 24 hours. According to analysts, growth names will benefit from this.

‍

A change in expectations about interest rates has played a major role in the recent rally for technology companies, according to me. A fast-growing technology company's multiple can be heavily influenced by interest rates," said Art Hogan, chief market strategist at B. Riley Wealth.

‍

The recent bounce in these shares has been attributed to traders swooping in to scoop up shares at a discount because many of these companies shares became severely oversold in 2022.

‍

A series of aggressive interest-rate hikes by the Fed sent mega-cap tech names into a tailspin during 2022. The S&P 500's Meta, Tesla, and Netflix were especially hard hit last year, as all three companies were among the 25 names with the worst performance.

‍

Technology giants such as Apple, Meta, and Alphabet are often referred to as technology giants, but in reality, they are spread across several different sectors of the S&P 500, including consumer discretionary, which is heavily weighted on Amazon.com. In addition to Amazon.com (AMZN) and Tesla, there are other companies within the information technology sector, including Intel and Microsoft, as well as Alphabet Inc., the parent company of Meta and Google (GOOGL).

‍

Further, Hogan said, large tech companies like Apple and Meta do not have high debt levels, have plenty of cash on hand, and have bottom-line income streams that Wall Street trusts.

‍

Adding to the argument, Forte noted that Amazon and Apple are among the top-performing stocks of the last decade.

‍

Credit Suisse's troubles helped revive worries about how central banks' rate hikes are affecting the global banking system on Wednesday, sending U.S. stocks down sharply. A nearly 500 basis point increase in the Fed's policy rate over the past year is the largest in history.