{"id":26667,"date":"2023-04-27T18:12:02","date_gmt":"2023-04-27T18:12:02","guid":{"rendered":"http:\/\/lynettelockhart.com\/client\/as-u-s-megacaps-soar\/"},"modified":"2023-04-27T18:15:52","modified_gmt":"2023-04-27T18:15:52","slug":"as-u-s-megacaps-soar","status":"publish","type":"post","link":"http:\/\/lynettelockhart.com\/client\/as-u-s-megacaps-soar\/","title":{"rendered":"As U.S. megacaps soar, some investors are wary of rising valuations"},"content":{"rendered":"

By Lewis Krauskopf<\/p>\n

NEW YORK (Reuters) – Some market participants are warning that the U.S. market’s biggest tech and growth stocks may be getting too expensive, even as better-than-expected earnings reports stand to further boost their appeal. <\/p>\n

The Nasdaq 100 has rallied 19% this year, while four stocks that alone have a 40% weight in the index – Apple, Microsoft, Google parent Alphabet and Amazon – have posted an average gain of about 27%. That compares to a roughly 7% rise for the S&P 500.<\/p>\n

Those gains have ramped up valuations: the price-to-earnings gap between the Nasdaq 100 and the S&P 500 recently hit its widest since early 2022, with the Nasdaq 100 trading at a P\/E of 24.5 times versus 18.4 times for the S&P 500.<\/p>\n

Valuations look even more expensive relative to history, given that interest rates were at rock-bottom levels during most of the past decade but soared last year as the Federal Reserve hiked rates to fight inflation. Tech and other high-growth companies generally are expected to bring in bigger profits in the future, but those projected cash flows are worth less in current dollars when interest rates rise.<\/p>\n

\u201cI am not sure that from a long-term perspective (buying tech stocks) is the appropriate decision,\u201d said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management.<\/p>\n

Nolte is underweight the tech sector, partially due to concerns about valuations and the expectation that the Fed will keep rates high to fight inflation.<\/p>\n

\n

(Graphic: Valuations of Nasdaq 100 and S&P 500 – https:\/\/fingfx.thomsonreuters.com\/gfx\/mkt\/znvnbnawavl\/Pasted%20image%201682614444541.png)<\/p>\n

\n

Microsoft, Alphabet and Facebook parent Meta Platforms have reported better-than-expected earnings this week. Amazon will report after the close on Thursday, while Apple is due next week.<\/p>\n

The better-than-expected financial numbers have helped justify the sharp rebound in megacap shares this year after a rough 2022. The rally has been driven in part by investors betting the companies\u2019 strong business models would see them through an increasingly shaky economic environment.<\/p>\n

Others, however, are more skeptical. <\/p>\n

\u201cIt is an interesting market when a $2.2 trillion company with low to mid-single digit growth is awarded a multiple in excess of 30x earnings,\u201d wrote Michael O\u2019Rourke of Jones Trading on Wednesday\u2019s rally in Microsoft shares, which rose 7.2% after their results beating revenue and profit estimates. <\/p>\n

Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, noted Meta Platforms saw \u201csignificant year-over-year declines in earnings per share.\u201d<\/p>\n

Shares of Meta were up 15% on Thursday and have roughly doubled year-to-date.<\/p>\n

\u201cIt’s tough to be impressed by companies exceeding already beaten down earnings estimates,\u201d he wrote. \u201cWe would not be buyers of big tech stocks, which are extremely overvalued.\u201d<\/p>\n

Analysts at UBS Global Wealth Management, meanwhile, said gains in megacap stocks – which are heavily weighted in the S&P 500 – are unlikely to continue sustaining the broader index, noting that the current valuation for the S&P 500 has historically been maintained when earnings expectations were rosier and bond yields were lower.<\/p>\n

Of course, concerns regarding tech stocks have been prevalent for months, yet have not stopped investors from piling into what fund managers in a BofA survey named as the markets most crowded trade. <\/p>\n

King Lip, chief strategist at BakerAvenue Wealth Management, believes the stocks can rally further, if concerns over economic growth intensify in coming months. <\/p>\n

\u201cI do think even in a challenging environment, which likely we are going to be going into, that people are going to look at the megacaps as a place … to play defense,\u201d he said.<\/p>\n

\n

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Nick Zieminski)<\/p>\n

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By Lewis Krauskopf NEW YORK (Reuters) – Some market participants are warning that the U.S. market’s biggest tech and growth stocks may be getting too expensive, even as better-than-expected earnings reports stand to further boost their appeal. The Nasdaq 100 has rallied 19% this year, while four stocks that alone have a 40% weight in […]<\/p>\n","protected":false},"author":8,"featured_media":26668,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[1213],"tags":[1223],"class_list":["post-26667","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-u-s-business","tag-updated"],"jetpack_featured_media_url":"http:\/\/lynettelockhart.com\/client\/wp-content\/uploads\/Reuters_Direct_Media\/USOnlineReportBusinessNews\/tagreuters.com2023binary_LYNXMPEJ3Q0VV-VIEWIMAGE.jpg","_links":{"self":[{"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/posts\/26667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/comments?post=26667"}],"version-history":[{"count":1,"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/posts\/26667\/revisions"}],"predecessor-version":[{"id":26669,"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/posts\/26667\/revisions\/26669"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/media\/26668"}],"wp:attachment":[{"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/media?parent=26667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/categories?post=26667"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/lynettelockhart.com\/client\/wp-json\/wp\/v2\/tags?post=26667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}