Big tech breakouts: Apple leads rally after rough start to 2022

Apple Inc. extended gains on Tuesday, in a winning-streak last seen nearly two decades ago, as improved risk sentiment is sending investors back to the largest U.S. technology companies.

Apple rose for an 11th-consecutive day in New York, climbing 1.9% to close at $178.96 and roughly $3 shy of a closing record reached in early January. The longest-winning streak since 2003 sent the stock back into the green for the year, and follows similar breakouts in Nvidia Corp. and Amazon.com Inc. in the past week.

“What we’re seeing is the difference between companies that are actually performing phenomenally well and those whose future is harder to quantify,” said Ross Gerber, chief executive officer of Gerber Kawasaki Inc. “People are betting on the companies that are growing earnings the fastest over time.” With prospects for some scaling back in the war in Ukraine boosting risk sentiment, attention turned to Apple’s profits outlook. Analysts have increased their earnings per share estimates by 8.6% so far this year, while those for the S&P 500 have gained 4.6%, according to data compiled by Bloomberg.

Investors also largely bypassed a Nikkei report about production cuts, leaving the stock within striking distance of a $3 trillion market value. The recent rally comes after a difficult start of the year for big tech, whose marquee names had fallen behind the broader market as the Federal Reserve signaled it would raise interest rates multiple times. Higher interest rates hurt the present value of future profits, hurting growth stocks with lofty valuations, including technology.

But investors who initially fled the sector have started to come back, enticed by discounts and the belief large technology companies with strong balance sheets and broad exposure to fast-growing markets like cloud computing can continue to churn out bigger profits.

“The selloff got overdone, and took these big tech names down to levels that were very attractive,” said David Katz, chief investment officer at Matrix Asset Advisors. “Apple is a very strong and dynamic growth company, and it remains at the better end of the pack in terms of its valuation.”

‘Confounding’ Rally
Among the other Nasdaq 100 bellwethers, Amazon rose 0.2% on Tuesday, while Alphabet Inc. advanced 0.7% and Microsoft Corp. gained 1.5%. Despite this week’s rebound, the Nasdaq 100 remains down about 7% for the year. The rally in big tech amid rising interest rates has left some investors scratching their heads. The yield on 10-year U.S. Treasuries has advanced more than 50 basis points this month to 2.39%.

Lisa Shalett, chief investment officer of Wealth Management at Morgan Stanley, wrote that the advance in the teach-heavy Nasdaq 100 has been “confounding,” as it comes at a time of higher interest rates as the Fed takes steps to fight inflation.

To Bill Stone, chief investment officer at Glenview Trust Co., the rally in big tech is a matter of investors looking to add to portfolios after the selloff and seeking out stocks with the highest returns on capital and low amounts of debt. “People are going shopping and they are certainly the ones that people will look at first,” he said. “We’ve been telling clients to move to quality in case we go into a recession. “Companies with low debt and high returns on capital won’t suffer as much.”