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To overcome the current turmoil in asset prices, investors rely on a traditional strategy; Namely, buying stocks from the huge US companies that have been driving the market rally for years. Since March 8, the shares of the five largest companies by market value (Apple, Microsoft, Google, Amazon, NVIDIA) have gained 4.5% and 12% when problems at Silicon Valley Bank raised concerns about the banking system, a period that witnessed a decline The Standard & Poor’s 500 index increased by 0.5%.
Investors see the big companies as the best bet because of their solid balance sheets, strong profit margins and business models that are expected to hold up better if a recession hits. The recent decline in US bond yields has supported the strength of stock prices this year; But its strength can have its drawbacks because the increasing market capitalization of the big companies means that indices, such as the Standard & Poor’s, are increasingly driven by a small group of stocks.
This could lead to volatility in the broader markets, if conditions change and investors quickly exit big technology companies and growth names. According to the point of view of other investors, “the intense crowding in the region of these shares may result in a sharp reversal from where they do not count, because everyone is in the same region.”
Banks and data
Investors are preparing to receive more news about more fluctuations in the banking sector this week, after the sharp declines in the shares of the European giants “Deutsche Bank” and “UBS”, on Friday, in the wake of the collapse of the banks. Silicon Valley” and “Signature Bank” earlier this month. The markets may also be affected by the expected US data on consumer confidence and inflation.
And after major technology companies took over the leadership of the US market in the decade that followed the financial crisis and led the sharp recovery of “Wall Street” after the sell-off in early 2020 fueled by the Corona virus pandemic; It fell last year when the Federal Reserve raised interest rates.
Its recovery is accelerating this year due to escalating concerns about the banking system, and recently the combined weight of “Apple” and “Microsoft” exceeded 13% on the index; This was the highest in more than 30 years for the top two stocks in the Standard & Poor’s index. At the end of 2022, the weight of the five largest companies in the index rebounded to 21.7% from 18.8% for the five largest stocks. And with the recovery of the big companies, some indicators of bread have become darker recently, indicators that technical analysts see as “barometers of the health of the broader market.”
The number of new lows in 52 weeks on the New York Stock Exchange and Nasdaq was on track to mask new highs for three consecutive weeks, a reversal after new highs capped new lows almost every week to start 2023.
Moreover, the percentage of some industry groups above the 10-week moving averages decreased from 87% in early February to 7% in the last week.
Perhaps the performance of major companies will be affected, if concerns about the banking sector ease, and investors turn towards economically sensitive stocks that have suffered before.
Other shares
The strength in the stocks of major technology companies seems to mask weakness elsewhere, as measures of market breadth have become more negative while the Standard & Poor’s 500 has fallen more than 5% since March, an indicator that shows the average share in the benchmark index . The Standard & Poor’s 500 energy index has fallen 7.5% since March 8, while the industrial sector has fallen 5%.
The recovery of US bond yields may lead to pressure on technology and growth stocks, and at the same time, it is expected that profit growth in the technology sector will follow the overall “Standard & Poor’s” index in 2023.
However, some investors are bullish on the blue chips, and despite last year’s market stumbles, some investors had a bullish bias. This, in turn, likely means that the growth stocks in the major companies will be the leaders in the next stage.
The most important events expected this week:
Monday 27 March
5:00 p.m. Federal Reserve Chairman Jefferson speaks
Tuesday 28 March
8:30 am US advanced trade balance for commodities/February
8:30AM Advanced Wholesale Stocks/Feb
9:00 am Case Shiller Home Price Index for January
10:00 am US Consumer Confidence / March
10:00 a.m. Federal Reserve Chairman Barr tests before the Senate on banking
Wednesday 29 March
10:00 am US pending home sales/Feb
10:00 a.m. Federal Reserve Governor Barr tests before House about banks
Thursday, March 30th
8:30 a.m. GDP (second revision)
8:30 a.m. Initial claims for unemployment benefits on March 25th
8:30 a.m. Continuing claims for unemployment benefits
12:45 p.m. Federal Reserve Chairman Collins speaks in Boston
Friday, March 31 st
8:30 a.m. Personal income (nominal) February
8:30 a.m. Personal spending (nominal) / February
8:30 a.m. PCE price index for Fe
