Wall Street’s beloved tech trade is back on.
U.S. technology stocks last week took back their title as the stock market’s most profitable bet of the year, and the FANG stocks have regained their shine after investors dumped the high-flying group in December over fears that the decade-old bull market was dying.
San Francisco’s unicorn startups are pouncing on tech’s newfound momentum. Ride-hailing company Uber Technologies Inc. is planning to kick off a long-awaited initial public offering in April, Reuters reported on Thursday.
That puts Uber close on the heels of smaller rival Lyft Inc., which released its filing for an initial public offering at the start of March after two solid months for technology stocks. The Nasdaq index is now on track for its strongest quarter since 2012, rebounding from its worst quarter since 2008.
“There was a lot of forced de-risking by hedge funds in December,” said Joel Kulina, a trader at Wedbush Securities who specializes in tech stocks. “Now there’s a lot of FOMO,” or “fear of missing out,” he said, a familiar motivation among U.S. investors in recent years.
The S&P 500 information technology index is up 17.7 per cent year to date, edging out a 15.2-per-cent gain in the industrial index, which led since February, but was held back last week by a slump in Boeing.
Investors dumped technology and FANG stocks – Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc. – late last year owing to deepening fears that the Federal Reserve would further raise interest rates and concerns that the China-U.S. trade conflict would escalate further and hurt corporate profits.
But the Federal Reserve in January signaled that rate hikes were essentially off the table for the time being, removing Wall Street’s largest source of anxiety.
Facebook remains more than 20 per cent below its July, 2018, record high as it faces continuing scrutiny of its handling of users’ personal data, but the social network’s shares have risen 30 per cent since December, reflecting a rebuilding of investor confidence.
Netflix has gained 34 per cent in 2019, even after its December-quarter revenue disappointed investors, and as it faces increasing competition from rivals including Walt Disney Co., and potentially Apple Inc.
Many investors are also becoming more confident that Washington and Beijing will resolve their trade dispute, opening the way for technology companies’ earnings to increase this year, instead of declining, as currently projected by sell-side analysts.
“We’re in a waiting game,” said Art Hogan, chief market strategist at National Securities. “Neither side wants this to continue much longer. The Chinese economy is slipping and the president wants a victory. Both sides are motivated to resolve this.”
After sweeping U.S. corporate tax cuts helped fuel a 24-per-cent rise in S&P 500 technology sector companies’ earnings per share last year, tech companies’ earnings are now expected on average to shrink by about 1 per cent in 2019, according to Refinitiv’s IBES data.
Analysts based that expected decline on recent guidance from companies feeling the pinch from the trade war, and those outlooks could quickly change if the conflict is resolved, Mr. Hogan said.
Chipmaker Nvidia’s $6.8-billion acquisition of Mellanox Technologies, announced last Monday, has increased speculation about more technology M&A.
With Microsoft closing the gap on Amazon’s leadership in cloud computing, and Alphabet far behind, the fast-expanding cloud-computing industry is an obvious place to watch for more deals, Mr. Kulina said.
Underscoring the cloud industry’s hyper growth, database seller MongoDB’s strong quarterly report sent its shares up 25.6 per cent on Thursday to a record high, with other cloud players also rising, including ServiceNow, Twilio and Appian.
The ISE Cloud Computing index is up 18 per cent so far in 2019.
The Philadelphia Semiconductor index has gained 20 per cent, even as uncertainly drags on related to a slump in demand, with many investors betting on an eventual resolution of the trade conflict and on a surge in business related to the upcoming rollout of 5G wireless communication technology.