Big Tech Offers Support for S&P 500 and Promise to Investors

(Bloomberg) -- Faster-growing technology firms haven’t been immune to the coronavirus-induced stock market meltdown -- but they’ve fared better than most and can act as a bastion of support for investors.

That’s the view of a number of fundamental and technical strategists who argue that once again technology stocks are better placed compared to broader U.S. benchmarks.

The NYSE FANG+ Index is down 31% since hitting a record on Feb. 19, compared to a 25% drop in the S&P 500 from its all-time high the same day. But that ignores the surge the megacap technology gauge enjoyed in the preceding weeks, leaving it down just 13% year-to-date versus a 22% slump in the broader equity benchmark.

“For the most part, the secular growth theme has held up well since the S&P 500 peaked on Feb. 19,” wrote RBC Capital Markets strategists including Lori Calvasina in a note Wednesday. “Near-term, we think this resilience could continue as fundamentals favor secular growers, especially in the tech/software/internet/e-commerce space.”

One caveat -- “a major wave of hedge fund redemptions or liquidations which could create forced selling,” -- the RBC team added.

Read: Market Stress Is Spiking at a Pace Almost Matching 2008 Crisis

Defensive Plays

Strong balance sheets, liquidity and the defensive nature of large technology companies cash flows, are the key attractions of the sector for Michael Purves, chief executive officer at Tallbacken Capital Advisors LLC.

“The large cap tech complex can be considered as a yield play,” he said. “Many of their cash flow streams are arguably the ‘new consumer staples’ and in many instances are more defensive cash flows than many other industry groups.”

Still, it might prove difficult to get investors bullish about any specific sector amid the worsening coronavirus outbreak. Global growth expectations plunged the most on record as the deadly virus spread across the world, the latest fund manager survey by Bank of America Corp. showed.

Technical Support

But beneath the recent losses, even the broader S&P 500 is outperforming many global peers because of the tech behemoths, thanks in part to the technical resilience of key constituents Apple Inc. and Microsoft Inc., Evercore ISI technical analyst Rich Ross wrote in a note Tuesday. The two tech giants remain well above key 200-week moving averages, unlike the U.S. benchmark, he said.

Piper Sandler technical strategists Craig Johnson and Adam Turnquist also noted the technical resilience of the biggest U.S. tech companies, in a report Wednesday. They suggested a stock market bottom will form in coming weeks, though with plenty of volatility still expected.

“The sector will continue to be an investor favorite and recover relatively quickly once risk appetite returns to the market,” the duo wrote.

©2020 Bloomberg L.P.