Maybe it’s time to hunt for some battered tech stocks after a stunningly hearty September jobs report.
How do I arrive to this conclusion, you ask, after weeks upon weeks of selling across the tech spectrum?
Catalysts. Believe it or not, they do exist when it comes to tech right now.
The first catalyst is, in fact, Friday’s blowout jobs report.
In the lead-up to the report, the vibe among those on the Street I chatted with was that an upside beat for the jobs report would mean a read through to higher inflation. With higher inflation it raises the specter of another Fed rate hike on November 1. Treasury yields keep climbing in advance of that and markets continue to suck wind.
But interestingly, that didn’t happen in Friday’s session.
Markets reversed losses and by the afternoon, stocks were solidly in the green. I liked that the gains in stocks came alongside another push up in Treasury yields.
Some of the market’s best performers on the session were big-cap tech names such as Apple, Microsoft and Salesforce — stocks that have taken it on the chin amidst the rise in yields (tech stocks hate when yields rapidly advance as they have been doing).
One day doesn’t make a trend, but the favorable action in beat-up tech stocks suggests investors are willing to hunt for perceived value inside an apparently still strong US economy.
So that is catalyst numero uno.
The other is a nugget I gleaned from a new note by UBS strategist Solita Marcelli.
Tech earnings fell by mid to high-single digit percentages year-over-year in the first half of this year, mostly on weakening consumer demand. Investments in areas like AI also weighed on growth rates.
Marcelli thinks that earnings dynamic is poised to change in a big way, and will kick off this approaching earnings season.
“With a rising contribution from AI, better base effects, and pricing power, we expect global tech earnings to turn positive in the third quarter and grow by around 16% for full-year 2024 (compared to around 9% for global equities). As a result, the tech sector should emerge as the fastest-growing segment within global equities next year,” Marcelli says.
The biggest upside opportunities in tech based on Marcelli’s work: cyclically focused semiconductors which have been hit hard on demand fears.
Others on the Street are also warming back up to tech names as we head into earnings.
Wedbush tech analyst Dan Ives is bullish on Amazon, Meta and Alphabet at this current market juncture. Similar to Marcelli, he sees value in part because of the earnings potential of tech.
Explains Ives, “Our view of tech stocks is that the transformational growth around AI, cloud, cyber security, and rebound of digital ad dollars will create a springboard of growth into 2024 that is currently being underappreciated by the Street. The Fed will cut in 2024 (can debate 2 or 3 cuts) and we believe this near-term obsession with the 10-year will dissipate as yields move lower and the soft landing takes place in 2024 with the Fed’s hand forced.”
Catalysts…search for them.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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