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Tech is back in the driver’s seat
This is the week that delivered the greatest breadth of returns in terms of number of shares and earnings dollar value. This is a so-called earnings bonanza! Just a handful of large-cap tech stocks powered the S&P 500’s gains in the first quarter of 2023, despite regional banking turmoil and recession fears. As I said in the tweet below, this is nothing new for the US stock market and we are seeing a repeat. Check out this tweet to see how each tech giant has contributed to market returns:
Nothing new. S&P 500 returns are driven by a handful of stocks. More than 5% of the S&P 500’s 6.6% annual gain can be attributed to just seven tech titans; S&P 500 futures are currently signaling a positive start to the day. above @SPGlobal pic.twitter.com/Oj42XhKDye
— CutTheCrapInvesting (@67Dodge) April 26, 2023
US stocks were higher last Wednesday as a rise in Microsoft (MSFT/Nasdaq) shares gave other major tech stocks a boost. Nine of the 11 S&P sectors were down on Wednesday. The technology sector is up more than 2% and added another 2% on Thursday. However, futures were down on Friday morning after Amazon (AMZN/Nasdaq) shares surfaced on Thursday, only to give it all back and one more thing just before we went to press.
In last week’s column, I hinted that the regional banking crisis may not be over yet. And as if on cue, First Republic Bank (FRC/NYSE) went to the guillotine.
The lender’s shares fell nearly 50% last Tuesday after announcing more than $70 billion in deposit outflows in the first quarter; The stock continued its decline last Wednesday.
On Monday, Bob Elliott, a former senior investment executive at Bridgewater Associates, suggested First Republic was a zombie bank.
stopped by @CNBCOvertime speak $FRC release.
FRC is a zombie bank and if anything the report was worse than expected.
Good macro news is that FRC pain means the Fed is borrowing less from other banks. Proposes a more limited “crisis” than previously known. https://t.co/dAUM2HjhIF
— Bob Elliott (@BobEUnlimited) April 24, 2023
This quote from Seeking Alpha frames the week:
“Over the past 36 hours, markets have experienced a bit of a tug-of-war between the dominance of US technology, which is aggressively tugging on the one hand against the still-shaky foundations of US regional banks on the other. …Meta’s positive earnings after the bell helped again overnight, but the fight will continue.”
– Jim Reid, Deutsche Bank
Google and Microsoft were two of the tech stars in the headlines. The market has certainly put a premium on how often management mentions the letters AI for artificial intelligence. The potential of AI drives excitement.
Microsoft stock soared after the earnings release, while Google declined.