Investors are now looking for a good entry after tech stocks declined recently. Prices became very attractive after the selloff in October. Now investors want to buy those counters for the handsome gain despite the overhang of the Federal Reserve (FED) meeting outcome.
The preferred bets of Market participants are the stocks of big U.S. tech companies and growth-focused firms, called the ‘Magnificent Seven.’ But Apple’s results will decide how these stocks do in November.
Challenges and opportunities for Tech stocks
This year’s challenges for tech stocks came from rising bond yields and inconsistent profit reporting. But earlier, they were pushing the market higher. In the last 52 weeks, their average value has decreased by almost 15% from the peak. However, those US tech stocks have still gained a lot this year.
Following the decline in their stock prices, these companies are now moderately valued. Their average forward price-to-earnings ratio shifted from about 45 times in mid-June to approximately 30 times.
Certain individuals in the market view this situation as a promising opportunity. They see potential in these companies due to their robust financial positions. These growth stocks can remain resilient even in the face of economic downturns.
It’s important to know that the “Magnificent Seven” together make up 28% of the S&P 500, showing how much they affect the whole U.S. stock market.
Even though the S&P 500 has receded by 9% from its 2023 peak, the tech giants still maintain a modest gain of slightly over 9% for the year.
The tech stocks received a massive $2 billion
Some investors, like Baker Avenue Wealth Management, have been buying more of these seven companies. Last week, tech stocks got $2 billion more money, the most in about two months, according to BofA Global Research.
Additionally, data from Vanda Research showed retail investors increasing their net purchases of these tech and growth stocks to 31% of total flows, up from below 30% for most of the month.
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Treasury yields and the Federal Reserve’s actions
The outcome for those dip buyers will depend, in part, on the path of Treasury yields, which have reached 16-year highs due to fiscal concerns and expectations that the Federal Reserve will maintain higher interest rates to combat inflation.
The Federal Reserve was set to conclude its latest monetary policy meeting shortly. Higher yields can raise the cost of capital for businesses and households while making government bonds a more attractive option compared to equities.
The 10-year benchmark Treasury yield has increased approximately 100 basis points since late July, putting pressure on stock prices. An important test for these stocks will come when Apple, the largest U.S. company by market value, reports its results on Thursday.
Big companies like Google’s parent Alphabet, Tesla, and Meta Platforms (Facebook and Instagram’s parent) saw their stocks drop a lot after they had lower-than-expected earnings. Investors wish companies to do exceptionally well because interest rates are high and there are worries about geopolitical tensions.
Top picks from investment experts
Jay Hatfield, the CEO of InfraCap, said companies face tough expectations to beat the market. Kim Forrest, the Chief Investment Officer at Bokeh Capital Partners, stressed that Apple’s performance is vital as it strongly impacts the S&P 500 due to its high weightage.
Apple’s stocks are up 31% this year. Different investors like different companies among the Magnificent Seven. Hatfield prefers Nvidia and Microsoft because they are doing well in artificial intelligence.
Thomas Ognar, a senior manager at Allspring Global, likes Amazon and Meta. He says they’re doing very well in managing costs and making important improvements.
Ognar pointed out that, regardless of their differences, these businesses are alike in their ability to effectively use huge amounts of data, making them smart investment choices.
