Big Tech's Resilience Shines in Face of Rising Interest Rates, Say Wall Street Pros

Experts Tout Strong Fundamentals and Cash Reserves as Key Factors in Tech's Performance Amid Interest Rate Concerns

Apr 14, 2024 - 11:20
Apr 14, 2024 - 11:20
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Big Tech's Resilience Shines in Face of Rising Interest Rates, Say Wall Street Pros
Big Tech's Resilience Shines in Face of Rising Interest Rates, Say Wall Street Pros

Investors witnessed a resurgence in mega-cap tech stocks last week, a trend that defied expectations given the prevailing concerns over rising interest rates. Despite another uptick in inflation, which cast doubt on potential rate cuts by the Federal Reserve, growth stocks reclaimed the spotlight during Thursday's trading session.

The resurgence of these tech behemoths, including Nvidia, Apple, Alphabet, Amazon, Meta, Microsoft, and Tesla, was fueled by robust fundamentals and substantial cash reserves. According to Truist co-chief investment officer Keith Lerner, many of these companies are less reliant on financing needs and less sensitive to interest rate fluctuations due to their healthy balance sheets.

In 2023, the free cash flow from these Magnificent 7 members soared by over $100 billion, underscoring their financial strength. Last week, this group outperformed the broader market, with the Roundhill Magnificent Seven ETF (MAGS) closing the week in positive territory while the S&P 500 declined by 1.6%. Notably, Amazon reached an all-time high, and Alphabet briefly surpassed a $2 trillion valuation. Even Apple experienced a significant uptick, marking its strongest performance in nearly a year.

According to Wall Street experts interviewed by Yahoo Finance, Big Tech is poised to continue outperforming in a high-interest-rate environment, at least in relative terms. Cameron Dawson, from NewEdge Wealth, views tech stocks as defensive and safety plays, suggesting that pullbacks present buying opportunities in the short term.

Keith Lerner echoes this sentiment, emphasizing that tech stocks are likely to be less sensitive to fewer Fed rate cuts compared to other sectors, positioning them for potential outperformance. Additionally, Ryan Detrick of Carson Group highlights the resilience of the tech sector amid a growing economy, suggesting that continued economic growth could benefit these companies.

Looking ahead, analysts anticipate strong earnings performances from tech companies in the first quarter, with estimated profits surging by 20%. Dan Ives of Wedbush sees this as a significant positive catalyst, projecting further gains for tech stocks throughout the year.

In summary, despite concerns over valuations and interest rates, Big Tech's solid fundamentals and resilience are expected to drive continued outperformance. These tech giants could play a pivotal role in stabilizing the broader market landscape amid ongoing economic uncertainties.

Also Read: Stock Market Update: Tech Stocks Slip as Big Banks Kick Off Earnings Season

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