Nordea Markets on Technology Stocks: – The downturn could be tough

The broad US stock market index, the S&P 500, is up 7.5 percent so far this year. Chief Strategist Eric Brosse called it impressive in the latest weekly report from Nordea Markets.

Information technology, cyclical consumption and telecommunications performed best among the technology-heavy sectors. Of the ten fastest growing individual stocks, nine are technology-oriented.

“Since some of the technology companies are among the largest in the overall US index, the rally contributed a lot to the overall rise in the S&P,” Bruce writes.

– The moment can go on

Bruce points out some common factors for the top ten companies.

“Most of them did well until the peak of the pandemic in late 2021, but then fell sharply in 2022. Most of them are also very expensive in the sense that they trade at high multiples such as P/E. They are very expensive not only relative to the broader market, but also to their history.” private “.

Part of the explanation for the rise of tech companies this year is the sharp decline in 2022, but from the assessment it would seem that the market is expecting a return to the good times in 2020 and 2021, when interest rates were low and profits grew.

“It is possible that the momentum in this sector will continue. But high prices make these stocks vulnerable. Especially if inflation and with it interest rates remain high for longer, deflation could be severe,” says the strategist.

stock resistance

Otherwise, Bruce notes that stocks ran into a bit more resistance and moved a bit more sideways in the past week.

We’re still early in the US earnings season, but so far most of them have exceeded analyst expectations, he writes.

“But it is mainly the large banks that have delivered and it is perhaps the development in smaller banks that is particularly worrisome. Pressure on deposit rates increased with the banking crisis towards the end of the quarter, so it is too early to see significant impacts on results yet.” , Add.