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Big US tech stocks near buying levels as rate peaks come into view
After being hit hard in 2022, US technology stocks could be close to buying levels, with market participants eyeing potential value in reallocating to tech stocks poised to benefit as central banks start cutting rates.
US technology stocks have suffered steep losses over the last 12 months as interest rates have marched higher. Technology shares are some of the most sensitive to rising interest rates since they derive much of their value from future earnings. As interest rates rise, their future cash flows are discounted by a higher interest rate, which reduces their current value.
With some central banks, including the US Federal Reserve, now signalling reductions in the size of expected future rate rises given moderating economic activity and inflation, rates are expected to peak in mid-2023 and then gradually decline. And with any fall in interest rates, value could emerge in certain technology stocks, according to market participants.
Shane Langham, a senior private wealth adviser at Sequoia Wealth Management and author of the Charting Wisdom sharemarket report, notes that Elon Musk’s Tesla could rebound after falling heavily in recent months.
“From a charting perspective, there are a number of reasons why Tesla could be finding support around the big-round-number US$100 area after dropping 75 per cent of its value and seeing consistently high volume changing hands over the last month or so,” Langham says.
“This stands out as it is occurring at a time when markets are quiet because of the holidays, when we generally see low volumes move through the market,” he adds. “Putting this all together is more than enough reason to keep your eye on Tesla, for at least a short-term bounce from around these levels.”
As of January 16, Tesla had fallen around US$312.69, or 75 per cent, from its all-time high of US$414.50 recorded November 4, 2021. “Losing three-quarters of its value in just 14 months is a massive fall,” Langham says. But, “to put things into comparison, during the COVID plunge Tesla dropped 64 per cent and did that in only a month and a half”, he adds.
“So, this time Tesla has fallen further but taken a whole lot more time to do so,” Langham says. “This brings Tesla back to just above the big-round-number level of US$100, with its low being US$101.81”, reached January 6, 2023. “Big round numbers can act as strong support and/or resistance levels.”
Other big tech shares have fallen hard, too, though not as hard as Tesla. As of January 19, Alphabet shares had fallen 30 per cent over one year, Meta shares were down 57 per cent, Amazon had fallen 38 per cent, Microsoft had fallen 23 per cent, and Apple 18 per cent, against a broader 23 per cent loss for the Nasdaq Composite Index and 13 per cent for the S&P 500.
Focus on quality could shield investors
Peter Leggett (pictured), chief investment officer at Arrow Private Wealth, also says Tesla and other big US tech stocks could rebound once central banks start cutting interest rates. “Lower interest rates can make borrowing cheaper, which can stimulate economic growth and lead to higher corporate profits, making stocks more attractive to investors.”
When considering reallocating to big US tech stocks, Leggett suggests investors focus on companies with strong fundamentals, such as high revenue growth, strong balance sheets and positive earnings.
“Some well-performing tech stocks in recent years include companies like Apple, Amazon, Facebook, Microsoft, and Google parent company Alphabet, as well as Nvidia and TSM, leading chip and semi-conductor companies, for example only,” he says. “These companies have a proven track record of success and have a significant market share in their respective industries.”
But not all planners are so confident in a tech rebound. Jaxon King, senior financial adviser at Alteris Financial Group, says he doesn’t necessarily think there is value to be found yet in technology stocks.
“There is still a long way to go before central banks start to look at cutting rates,” King says. “Tesla, in particular, is subject to so much volatility because of the risks associated with Musk’s unpredictable nature. Very few CEOs can affect a share price so severely with one tweet.”
But when value does emerge, low-cost options to get exposure to big US tech companies could include exchange-traded funds (ETFs) tracking the S&P 500 Index or BetaShares’ range of thematic ETFs, which offer broad exposure to the US technology sector, according to King.
“I think most investors would already have some exposure to some extent,” he says. “The S&P 500 is dominated by Big Tech, and I don’t see that changing any time soon.”
Robo advisers, or digital platforms providing investment advice, often have technology-focused portfolios that could be a good way to get exposure to big US tech stocks, Leggett adds. These platforms automatically allocate assets based on an investor’s risk tolerance, time horizon and goals.
Higher-cost and more concentrated options “could be some of the funds that have copped a hiding in the last 12 months, like the T. Rowe Price Global Equity Fund and the Zurich Concentrated Global Growth Fund”, King says.
