US technology stocks enjoyed their best day of 2017, as investors took advantage of the recent sell-off to dive back into some of the companies that have powered most of the stock market’s gains this year.
Tech shares — especially big blue-chips such as Facebook, Amazon, Apple and Microsoft — have been the biggest driver of the US market’s climb to record highs this year, but suffered last week as some investors worried that they had become overvalued.
After falling almost 4 per cent since June 8 in what some analysts dubbed a “tech wreck”, the S&P 500 technology index bounced back with a 1.7 per cent gain on Monday, its best daily rise since December 7 and extending this year’s rally to 19.1 per cent.
Apple, the biggest listed US company, gained 2.9 per cent, chipmaker Nvidia rallied 3.8 per cent and Facebook rose 1.5 per cent, making tech the day’s best-performing sector and helping the broader S&P 500 index to a new record close.
“We think the latest pullback in tech is more likely to represent a pause that refreshes some excess optimistic sentiment than it is the start of something nastier,” Liz Ann Sonders, chief investment strategist at Charles Schwab, said in a note.
“Today’s tech companies look nothing like many of their 2000 counterparts, some of which were valued on silly things like ‘eyeballs’ given they had no earnings, and little prospect of ever having an earnings stream.”
Investors have in recent years mostly fastened on to the “Faang” stocks — Facebook, Amazon, Apple, Netflix and Google — as powerful growth stories, making their shares soar. But some analysts have advocated replacing Netflix with the much bigger Microsoft, a more important driver for the US stock market as a whole.
The overall market capitalisation of Facebook, Amazon, Apple, Microsoft and Google now stands at just under $2.9tn, compared to the FTSE 100’s dollar value of $2.57tn, and the combined value of France’s CAC 40 and Germany’s Dax of almost $3tn.
Some analysts and fund managers remain cautious, arguing that the optimism of equity investors stands in sharp contrast to the pessimism of bond markets. Peter Tchir, at Brean Capital, said that while the resumed tech rally was “key for the broad market resuming its upward trend”, he was still sceptical that it could last.
“Today is positive, but such a big move on no news says more about broader liquidity than the fundamentals being solid,” he added.