Tech stocks lose steam. What to make of the moves

Posted by jbrumley on July 26, 2020 1:06 PM

By Lizzy Gurdus, CNBC

Big Tech has become a drag on the broader market.

Shares of Microsoft, Facebook, Apple and Google parent Alphabet fell on Friday, weighing on the major averages ahead of the busiest week of earnings season.

Microsoft reported earnings this week and received a mixed reaction from Wall Street. Facebook is scheduled to report Wednesday, while Apple and Alphabet are slated for next Thursday.

Market analysts are split on tech’s positioning and where the soaring sector could go next.

Here’s how three of them viewed Friday’s moves:

Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch, said tech has climbed to “extreme” levels:

“My sense is that when you sort of disaggregate all of this stuff and you look at what’s been driving the market higher, we all know it’s tech, but the reason tech’s been moving higher is because it’s essentially investors looking for something to buy and what they’re settling in on is high-growth tech companies. Why this time might be different is that if you look at positioning and valuations of growth stocks, namely tech stocks, versus value stocks like financials, like industrials, like energy, the valuation dispersion is massive. And tech is … more expensive than it was back in 2000 by many measures. So, I think that’s where we get to a point where things really look extreme right now.”

Gene Munster, managing partner at Loup Ventures, said tech is still a solid long-term bet:

“FAANG plus Microsoft is now 25% of the S&P 500. On top of that, since the pandemic, the dollar’s been down, call it 6-7%, Nasdaq up about the same amount, and FAANG and Microsoft up almost 20%. I think this is as simple as these have been outperforming, and as investors get a little bit skittish, I would refer to it as a finger prick. ... As they get skittish, I think that they just naturally pull back more. I will emphasize this fault line, this fracturing of the market, between the haves and the have-nots. It’s been clear in that performance over the last few months, but I think that that line is going to become even more clear in the months and years ahead. And so, I do not think there’s anything fundamentally wrong with most of these companies. I think some of them have real issues, some of these bigger companies, but I think most of them are still great companies to own for the long term.”

Dan Ives, managing director of equity research at Wedbush Securities, figured investors were taking a “risk-off” approach to tech ahead of next week’s earnings rush:

“Look, these stocks have had massive runs. I still view it as a speed bump. [In] our view, tech stocks, FAANG names a year from now are 20-30% higher despite some of the white knuckles that we’re seeing. … I do think a lot of it’s been a re-rating, but I think also in this Covid environment, cloud, e-commerce, streaming, a lot of these growth stories, they’ve been pulled forward by two years. And I think you’re seeing the stocks react to that dynamic and I think investors are chasing them, but I still believe there’s room ahead given what we’re seeing.”