Fed Chair Jerome Powell is expected to remain vague about the timing of the central bank’s tapering of asset purchases during the annual Jackson Hole economic symposium later this week.
The recent advance in tech stocks has come as Treasury prices have risen. The yield on the 10-year Treasury has fallen nearly a half a percentage point since the end of March. The Nasdaq 100 has gained 17% over that period, outperforming the S&P 500 Index by more than four percentage points. The Nasdaq 100 hit a record high Tuesday, along with the S&P 500.
Excluding Amazon.com Inc., the so-called Faamg stocks have gained even more. Google-parent Alphabet Inc. is up 37% over the same span. Microsoft Corp. has advanced 28%, while Apple Inc. and Facebook have both gained more than 20%.
Citigroup Inc. strategists who expect the 10-year yield to climb toward 2% as the market heads into 2022 recommended this month that investors reduce exposure to tech stocks due to the risk of higher interest rates.
At the same time, the sector’s earnings growth is expected to shrink in coming quarters, adding potential headwinds. Tech companies in the S&P 500 have so far reported a 47% increase in second-quarter profits compared with the same period a year ago. But analysts expect that growth will slow in each of the next four quarters, according to data compiled by Bloomberg Intelligence.
Jason Benowitz, senior portfolio manager with Roosevelt Investment Group, is skeptical that the streak of tech-stock outperformance can be maintained.
He expects yields to rise as the Fed gets closer to scaling back the monthly purchases of Treasury bonds and mortgage-backed securities that have injected massive amounts of cash into the financial system. He said that would put pressure on the so-called mega-cap tech stocks, which have few other catalysts before the holiday shopping season begins.
“It’s hard to get excited about the world’s biggest technology companies in that backdrop,” he said.
--With assistance from Tom Contiliano and Ryan Vlastelica.
This article was provided by Bloomberg News.