NEW YORK (Reuters) – US technology and growth stocks have taken the reins of the market in recent weeks, disrupting a stock rotation as investors assess the trajectory of bond yields and future earnings ratios. The technology was the best performing S&P 500 in April, up 8% from a 5% increase in the benchmark. Large technology-related growth stocks in other S&P 500 sectors, such as Amazon Inc., Tesla Inc. and Google-parent Alphabet Inc., also charged more.
Earnings followed a rotation of several months, in which technological stocks were outpaced by the actions of banks, energy companies and other economically sensitive names, which have risen since the discoveries of COVID-19 vaccines at the end of last year. Growth in many of these so-called stock stocks has slowed recently, while US Treasury prices returned to a gallop in April after a sharp sell-off in the first quarter. This suggests that some investors may have already priced in a rapid growth, which appears in economic data. “Technology and growth have started to grow a little bit, because people are getting a little more cautious,” said Lindsey Bell, chief investment strategist at Ally Invest. “Investors are in this mode of waiting and watching … at least until the gains begin.”
One of the key factors in the technology movement has been the Treasury market, with the 10-year benchmark yield falling by about 15 basis points in April to about 1.6% on Friday.
Higher bond yields are particularly challenging for the performance of technology and other stocks with high valuations and expected future profits, as rising yields reduce stock values in many standard models. The 10-year yield increased by about 83 basis points in the first quarter.
“People are probably breathing a little and saying, ‘OK, maybe the rates won’t go straight to (2.50%),'” said Chris Galipeau, a senior market strategist at Putnam Investments.
6-month chart of the S&P technology sector and the 10-year US Treasury
The actions of technology and other companies with strong “home stay” companies could also strengthen if there are problems in the national vaccination process or other problems with the recovery, investors said.
For example, a call by US health agencies this week to discontinue the use of the Johnson & Johnson coronavirus vaccine has led to a move to some stocks at home and outside of travel names related to the economic reopening. Investors also stressed that the imminent flow of quarterly reports is key to determining market leadership, with Netflix Inc and Intel Corp among the company’s major technology and growth gains to come next week.
Many investors believe that the recent change in the market is just a pause, with cyclical stocks and stocks regaining order after years of delay, as investors take advantage of stocks that will benefit most from what the Federal Reserve expects to be strongest. economic growth in almost 40 years. years.
“I think we’ll see more of this internal rotation where growth pauses and then lights up, then the value pauses and then lights up,” Galipeau said. “It won’t surprise me if this continues for several years.”
Others have become more cautious about the stock market in general. Strategies at BofA Global Research recently issued a report listing five reasons for prudence over stocks, including high valuations and oversized returns over the past year. The bank maintained its S&P 500 target at the end of the year at 3,800, about 9% below current levels. The index rose 11% this year.
“Against the background of an increasingly euphoric feeling, superior valuations and peak stimulus, we continue to believe that the market has overpriced in the good news,” wrote BofA strategies.
Reporting by Lewis Krauskopf; Edited by Richard Chang