SUPERNEWS

Macro

Global Techs Outshine S&P 500, Analysts See 20%+ Upside

Global tech stocks outperform S&P 500 with over 20% upside, driven by Fed rate cut expectations and strong Q1 earnings.

By Bill Bullington

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5/7, 19:33 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Amazon.com, Inc.
CrowdStrike Holdings, Inc.
Alphabet Inc.
Meta Platforms, Inc.
NVIDIA Corporation
Western Digital Corporation
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Key Takeaway

  • Global tech stocks like CATL, CrowdStrike, and Western Digital outperformed the S&P 500 with over 20% upside predicted by analysts.
  • High optimism surrounds tech sector, driven by rate cut hopes and strong Q1 fundamentals; Nvidia's upcoming results seen as next catalyst.
  • CNBC Pro screen highlights stocks with significant analyst backing and potential for growth, including SoundHound AI with a 145.8% YTD performance.

Tech Stocks Fuel Market Optimism

The U.S. stock market has experienced notable volatility over the past month, culminating in a robust rally led by technology stocks, particularly Meta, Alphabet, and Amazon. This surge is largely attributed to growing investor anticipation of Federal Reserve rate cuts. The Dow Jones Industrial Average and the S&P 500 have both enjoyed consecutive winning sessions, with tech stocks playing a pivotal role in this upward momentum. UBS highlights that shifts in investor expectations regarding the Fed's monetary policy, coupled with geopolitical tensions in the Middle East, could introduce further market volatility. However, positive fundamentals in the tech sector, underscored by strong first-quarter performances and the potential of generative artificial intelligence, continue to bolster investor confidence.

China's Market Resurgence

China's stock market has rebounded impressively from a prolonged slump, outperforming the S&P 500 with the MSCI China index and the KraneShares CSI China Internet ETF posting significant gains. This recovery is driven by investor optimism towards Chinese tech stocks, buoyed by policy support and growth prospects. Bernstein and other analysts advocate for a momentum-driven investment approach, particularly in tech stocks, as China's policy environment remains a critical factor for sustained market rally. BNP Paribas and JPMorgan have expressed bullish outlooks, citing China's commitment to pro-growth reforms and the potential for a broadening economic recovery to fuel further market gains.

Earnings Growth Surpasses Expectations

The "Magnificent Seven" tech giants, excluding Nvidia, reported a combined earnings growth of 49%, significantly outperforming the S&P 500. This remarkable growth, despite high interest rates, underscores the resilience and strategic agility of these companies. Analysts predict that the narrowing differential between tech giants and other sectors could lead to broader market growth, with strong earnings per share (EPS) growth expected to continue into 2025. The ability of large cap companies to maintain strong profit margins in a high-interest-rate environment highlights their financial health and investor confidence.

Liquidity and Market Stability

Recent policy adjustments by the Federal Reserve and the Treasury Department are expected to inject $273 billion of net liquidity into the market by the end of September. The Fed's decision to scale back its Quantitative Tightening (QT) purchases and the Treasury's preference for short-term bills aim to maintain market liquidity and stability. These measures, seen as conservative strategies to avert financial crises, reflect a proactive approach to managing market dynamics ahead of the US election.

Street Views

  • UBS (Neutral on Tech Stocks):

    "Any shift in investor expectations around the Fed’s path to rate cuts and the fluid situation in the Middle East may inject further volatility... But ahead of the next catalysts, including Nvidia’s results and major industry conferences, we are encouraged by many positives in tech fundamentals during the first-quarter reporting season, which in our view continue to support the investment case for generative artificial intelligence."

  • Bernstein (Bullish on China Tech Stocks):

    "We are positive on chasing momentum stocks across the region including within the tech sector."

  • Kevin Liu, CICC Research (Bullish on Tech Names with High-end Upgrading Opportunities):

    "My conviction call would be a structural barbell allocation with themes including tech names with high-end upgrading opportunities," among others.