Investors See Tech Stocks as a Refuge

Investors have returned to the safety and growth of the biggest technology stocks.

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, New York Times

Investors have returned to the safety and growth of the biggest technology stocks.

Five big tech companies — Apple, Amazon, Microsoft, Netflix and Nvidia — closed at historic highs on Tuesday. Alibaba and Facebook have done the same in recent days. The tech-heavy Nasdaq Composite has returned to record territory, up 8 percent since the end of April. The Standard & Poor’s 500-stock index and the Dow Jones industrial average remain 4.3 percent and 6.8 percent off the records they set on Jan. 26.

The rally has come as the global economy shows signs of strain. Fears of a trade war have made investors anxious; emerging market stocks, bonds and currencies have all sold off; and economic data in some regions has softened in recent weeks.

“In an uncertain world with significant downside economic tail risks, technology has been seen to be, correctly, relatively stable,” Peter Oppenheimer and Guillaume Jaisson, strategists at Goldman Sachs, wrote in a recent report.

Such economic uneasiness in the years since the financial crisis had caused investors to pour money into the sector. The likes of Facebook, Alphabet, Amazon and Apple have come to be viewed as having nearly unassailable revenue streams that could deliver growth in most economic conditions. With interest rates at historic lows and economic growth lackluster, investors have found that appealing.

“Investors have been well served by the current global dominance of American tech companies, and yet there is plenty of chatter about changing this winning approach,” Nicholas Colas, co-founder of DataTrek Research, said in a recent note.

In March, some of the best-performing tech stocks began to struggle. Facebook’s handling of user data in the Cambridge Analytica scandal contributed to a backlash against the size and reach of the biggest tech companies and raised concerns that regulators may soon crack down on these firms.

The pullback was a rare dip for a sector that had risen consistently for the past several years. Since stock markets in the United States bottomed out in March 2009, shares of Apple, Amazon, Nvidia, Microsoft and Alphabet have all gained more than 500 percent; Netflix is up 6,500 percent. The S&P 500 has risen about 300 percent over that period.

How long can the biggest tech stocks dominate the market? For a while, Oppenheimer and Jaisson said. They pointed out that earnings and sales growth, not a speculative increase in valuations, have driven the post-financial crisis runup.

“Unlike the technology mania of the 1990s, most of this success can be explained by strong fundamentals, revenues and earnings rather than speculation about the future,” Oppenheimer and Jaisson wrote.

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