Google’s woes aside, most technology stocks are flying high. The NYSE Fang+index, which consists of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) and five other tech stocks, has just enjoyed its biggest one-month gain (34.4 per cent) on record. The Nasdaq 100 index is up 16 per cent this year, twice as much as the S&P 500.
The tech rebound comes in the face of a challenging earnings season. In aggregate, the biggest tech stocks missed estimates by 8 per cent, notes Bank of America. In contrast, overall S&P 500 earnings have slightly beaten estimates.
The fact that earnings underperformance isn’t reflected in recent stock price performance indicates much bad news was already priced into tech stocks, which were pummelled last year. This arguably allowed investors to look past poor earnings and to cheer belated cost-cutting promises from Facebook parent Meta, Apple, Amazon and other tech giants.
Additionally, a less hawkish outlook on interest rates has catalysed renewed interest in growth stocks. Still, record-breaking monthly gains look incongruous against a backdrop of lousy earnings. Nor are interest rates returning to the zero-rate levels that persisted over the past decade. That means tech stock valuations cannot return to 2021 levels, so further share price gains may prove trickier.