Governors in some of the most densely populated states are beginning to reopen their economies.
Cue the technology bears.
Tech stocks were under pressure earlier this week as Governor Ron DeSantis of Florida signed an executive order to completely reopen all businesses shuttered by COVID-19. Bearish traders tell us this marks the end of the tech advance.
That’s what they always say.
That said, I think it would be prudent for investors to adjust their portfolios based on price movement. This week, we saw a perfect example: All the big-technology platforms reported blowout financial results last week. From Apple Inc. (Nasdaq: AAPL) to Facebook Inc. (Nasdaq: FB), the numbers were exceptional.
The iPhone maker reported second-quarter earnings last week of $1.40 per share on the strength of much stronger handset, iPad and Mac computer sales. And it posted a quarterly record for revenue of $89.6 billion, up 54% year over year.
Facebook reported revenue of $26.17 billion and quarterly earnings of $3.30 per share, crushing estimates.
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Tim Cook and Mark Zuckerberg, the CEOs for Apple and Facebook, respectively, are normally corporate foes. But this week, they were singing the same tune about robust growth going forward as new products roll out and economic activity rebounds. The news could not have been better.
However, after an initial sugar rush rally, shares faded badly.
Now, I’m not buying into the idea that this is the end of tech. It’s not. However, investors are less willing to pay for growth. That’s a dangerous sign. It suggests we could have a period of weaker relative performance.
As a result, I believe tech stocks may underperform cyclicals … for a bit.
Institutional investors may bet they can get growth from businesses directly exposed to consumer spending. This entails better stock performance for banks, industrials and consumer discretionary sectors, such as restaurants, hotels and retailers.
The latter group soared earlier this week as the Florida reopening hit the newswires. Later in the session, Governor Andrew Cuomo of New York said his state, along with New Jersey and Connecticut, could begin easing COVID-19 restrictions as early as May 19.
Although tech probably won’t be as vital as it was during the past year because of the pandemic, the underlying digital transformation will always be here to stay.
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This pullback won’t last long, and savvy investors should strongly consider adding shares in companies like Apple. Its in-person stores are the perfect way to gain exposure to a strong recovery in consumer spending without leaving the tech sphere entirely.
Again, I’m not buying into the bearish argument that tech stocks are dead money at all. I feel growth trumps all and that most of the big tech platforms will continue to grow rapidly in the months ahead as corporations and consumers loosen their purse strings.
Tech bears believe the growth is over. It’s still just beginning.
Best wishes,
Jon D. Markman
