NEW YORK: Investors are weighing how big to go on U.S. technology stocks in the coming year, as pricier valuations, regulatory risks and a revival of the market’s beaten-down names threaten to dim their allure.
A surge in technology and internet-related shares helped lift U.S. indexes to record highs this year. Gains in Apple, Amazon and Microsoft alone accounted for more than half of the S&P 500’s 16.6% total return as of Dec. 16, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Tech took a back seat in recent weeks, as hopes of a vaccine-led economic recovery fueled a rally in energy, financials, small caps and other less-loved parts of the market. The Russell 1000 value index climbed 10% since breakthrough vaccine data was announced in early November, compared to a 4% gain in the Russell growth index, which is broadly populated by tech stocks.
Though it is unclear how long the change in market leadership will last, the shift highlights a dilemma that has confronted investors throughout the last decade. Limiting tech exposure has mostly been a losing bet for years and the coronavirus pandemic accelerated trends that stand to benefit the group. But valuations near 16-year highs are raising concerns about the sector’s vulnerability, especially if a U.S. economic reopening creates a sustainable trade in value stocks.
“I think that people are going to stick with their tech exposure but I don’t think there is going to be a lot of fresh money put into tech in the new year,” said Lindsey Bell, chief investment strategist at Ally Invest.
The technology sector along with shares of big tech-related companies — Amazon, Google-parent Alphabet and Facebook — account for about 37% of the market-cap weighted S&P 500, giving them outsized influence on the index’s gyrations and investors’ portfolios. Fund managers polled by BofA Global Research named “long tech” as the market’s most crowded trade for the eighth straight month. – PNP
