‘It’s clicks versus bricks’: Why tech stocks won’t be fading anytime soon
As the S&P 500 once again threatens to break through its all-time high, it’s no secret that large-cap tech stocks have been leading the way as far as market performance is concerned. And to some analysts, it seems increasingly likely that tech’s recent rally is just the latest chapter in a long-lasting trend in the markets.
By far the largest sector tracked by the S&P 500, with an aggregate market capitalization of $7.66 trillion, information technology stocks make up more than 27% of the benchmark index. By contrast, health care—the second-largest sector—carries a market cap of just under $4 trillion and represents only 14% of the index.
Tech stocks’ huge share of the index is both a result of and an explanation for the S&P 500’s rebound of more than 50% since its nadir during March’s historic, coronavirus-induced correction. In a market that has at times felt woefully disconnected from the struggles of the U.S. economy at large, blue-chip tech stocks have performed the best of all; the S&P’s information technology sector has climbed more than 25% year to date (compared to a 5% increase for the index at large), and 45% over the last 12 months (versus a 16% spike for the S&P 500).
Moving forward, it’s unlikely that dynamic will change much, according to analysts. Not only do big tech players continue to print money as far as their results are concerned, but the coronavirus pandemic has exacerbated the importance of their services to the broader economy.
“I believe that [large-cap tech stocks] will continue to lead the market higher, because that’s where the cash flow is in this work-at-home and shop-at-home economy,” according to Marc Chaikin, founder of quantitative investment research firm Chaikin Analytics. “Right now, it’s clicks versus bricks.”
That influence will likely only grow in the coming years, even in a post-pandemic world, since that world will undoubtedly be altered by an acceleration toward automation and tech-enabled services. Tech investors, in turn, will be primed to benefit.
Chaikin adds that though the S&P 500 continues to run into “resistance” as it approaches its all-time peak of 3,386 points, the index should eventually surpass that barrier. “We are now looking for 3,500 to 3,600 [points] as a price target,” he notes.
After all, the S&P has started the month of August in fine form, having registered gains eight of 11 trading sessions thus far (it closed Monday’s session up marginally, gaining 0.3%).
“Historically, this early-month strength has been followed by further upsight through month-end,” according to Chaikin. “This is consistent with our view that we are experiencing a Fed-driven, gradual melt-up in stock prices.”