Tech stocks return to near-record levels as Faangs regain allure

Technology stocks, for years the US stock market’s leading sector, have quietly regained their front-runner status.

The S&P 500 information technology sector gained 0.2% on Tuesday, putting it on track for its fourth straight daily gain and taking it within 1% of a record close hit in early October. The industry benchmark has advanced more than 30% from a late December low, and is up 21% thus far in 2019, the biggest percentage gain of any of the 11 S&P 500 sectors.

Tech has helped to lead the overall market higher in 2019. The S&P 500 itself is up about 14% thus far this year, though it remains a little more than 2% below its closing record.

The communications services sector — which includes such tech-adjacent Internet names as Netflix, Facebook, and Google-parent Alphabet — has seen a similar rebound in recent months. The group is up about 23% since its December bottom, and is also within 1% of its closing record.

Tech and Internet stocks drove the broader market higher for years, but turned lower in the final months of 2018 as investors fretted whether their high levels of growth were sustainable.

“There’s been a lot of unwinding of bad news since December. The concerns have been absorbed into the stocks, and they continue to trade at reasonable valuations and have strong growth,” said Eric Green, senior portfolio manager at Penn Capital Management.

“Even beyond company-specific good news, there’s been progress with trade and a shift in Fed policy that’s encouraging,” he said in a phone interview. “The rebound makes sense and no one is talking about it,” suggesting it wasn’t fueled by euphoria.

Fourth-quarter weakness was driven by such high-profile concerns as Apple facing weaker demand for its iPhone and the broad semiconductor industry warning of headwinds related to pricing and high levels of inventory.

These issues haven’t dissipated in 2019, and there have been broader concerns about the pace of overall economic growth. Nevertheless, the stocks have shown signs of recovery. Both Nvidia and Western Digital — two chipmakers that saw heavy weakness in the finals months of 2018 — have gained more than 30% in 2019, while Apple is up more than 20%.

“If we’re in a slower-growth environment, which data is suggesting, tech is one area where you can still feel reasonably sure that you’ll get better growth than the overall economy,” said Bruce McCain, chief investment strategist at Key Private Bank, who also spoke in a phone interview. “Valuation has become a secondary consideration again.”

© 2019 Bloomberg L.P