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Why Are Investors Worried about These Five Big Tech Stocks?

December 21, 2021 By Jeremy Jones, CFA

By iQoncept @ Shutterstock.com

Five big tech stocks are worrying investors, as they have gotten a harsh dose of reality over the last few trading sessions. Michael Wursthorn reports for The Wall Street Journal, writing:

The stock market’s rise this year has narrowed around a short list of big tech companies, a sign of possible weakness heading into 2022.

Five of the biggest stocks in the S&P 500 account for more than half of the broad benchmark’s gain since April, analysts at Goldman Sachs found. Of the S&P 500’s 22% advance this year, those stocks— Microsoft Corp. MSFT -1.20% , Nvidia Corp. NVDA -0.29% , Apple Inc., AAPL -0.81% Alphabet Inc. GOOG -0.28% and Tesla Inc. TSLA -3.50% —are responsible for around a third.

The dominance of a handful of tech behemoths marks a shift from the more-inclusive run-up that propelled the stock market late last year and in early 2021. Investors appeared to be returning to a favored trade of the past decade—focusing on a few large, growing, profitable tech companies—for safety, analysts said, as they contend with a string of anxieties that have sapped confidence.

That has the S&P 500—and the more than $5 trillion that follow it through passive funds—on precarious footing heading into the new year, several analysts and investors said. “If those companies, for whatever reason, stop performing, there’s nothing to support the market,” said Peter Cecchini, director of research at hedge fund Axonic Capital.

Investors have been getting a harsh dose of that reality in recent trading sessions. The S&P 500 fell nearly 2% during the week, as shares of Microsoft, Nvidia, Apple, Alphabet and Tesla all slid at least 4.2%. Losses piled up further Monday, as the broad benchmark slid another 1.1%, with all five big tech stocks closing in the red.

Investors appeared to be trading out of those stocks and shares of other high-growth companies in favor of more defensive holdings, such as consumer staples and utilities, in response to the Federal Reserve’s decision last week to enact a policy pivot to combat runaway inflation and the latest Covid-19 variant. Supply-chain bottlenecks and concerns about the earnings outlook next year, which still calls for solid growth, have compounded investors’ souring sentiment.

Expectations that stock prices will fall over the next six months jumped to 42% earlier this month, the most bearish reading in more than a year, according to a weekly sentiment survey conducted by the American Association of Individual Investors. The Nasdaq advance-decline line—which compares the number of securities on the exchange that fall each day with the number that rise—has mostly fallen over the past month, recently hitting its lowest level since November 2020.

Unprofitable growth stocks, the darlings of 2020’s rally, have already been hit, said Vincent Deluard, a global macro strategist at StoneX Group, who has identified more than 300 unprofitable companies that have fallen more than 50% from recent highs.

Read more here.

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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. CNBC has ranked Richard C. Young & Co., Ltd. as one of the Top 100 Financial Advisors in the nation (2019-2022) Disclosure. Jeremy is also a contributing editor of youngresearch.com.
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