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Tech stocks propelled the Nasdaq Composite to a new high on Friday for the first time since July in a sharp turnaround after falling as much as 15 per cent during the summer.
The technology-heavy index rose as much as 1.5 per cent to 18690.01, surpassing the previous intraday peak of 18671.07. It gave up some of the gains to close at 18518.61 — up 0.6 per cent for the day but below its record closing level.
“Each time we panic, the market continues to rise. At some point you stop panicking,” said Luca Paolini, chief strategist at Pictet Asset Management.
Wall Street’s benchmark S&P 500 index, which is less heavily weighted towards tech groups, regained its record highs more quickly after the midsummer sell-off. Tech stocks were among the worst hit in the volatility, and many analysts had predicted that falling interest rates would shift investors’ focus from big tech companies to more cyclical sectors and heavily indebted groups.
However, the Nasdaq’s return to a peak comes as the burgeoning “rotation” has lost steam, with the largest tech stocks once again outperforming the broader market since the central bank cut interest rates in mid-September.
The S&P 500 information technology sub-index has gained 7 per cent since the September rate cut, compared with around a 3 per cent gain for the broader index.
Investors have scaled back their expectations of further US interest rate cuts since the Federal Reserve made its first reduction since the pandemic in September.
Irene Tunkel, chief US equity strategist at BCA Research, said the “Magnificent Seven” large tech companies were benefiting from both stronger earnings and investor optimism over artificial intelligence.
In a reference to next month’s US presidential election, in which Donald Trump is facing Kamala Harris, she added that such investor enthusiasm for tech was “not especially sensitive to the economic or election cycles”.
Tunkel described investors’ stance as a “heads I win, tails you lose” bet, in which tech companies prospered in a variety of economic scenarios.
Still, not every large tech group has benefited equally from the recent rally. Only three of the so-called Magnificent Seven — Nvidia, Apple and Meta — have set new records since July.
Tesla is the only one of the seven that has yet to reach the heights it set during the mid-pandemic market boom of 2021, but was one of the biggest contributors to the index’s final push to a record this week. Shares in the electric-car maker jumped more than 20 per cent on Thursday after it reported better than expected results, and climbed further on Friday.
Some analysts expect other sectors to rejoin Big Tech in driving the market higher, as earnings improve and as political uncertainty reduces after the November 5 election.
Third-quarter earnings season started this month with above-consensus reports from large banks.
Mona Mahajan, senior strategist at Edward Jones, said earnings growth outside the tech sector could also lead to a “broadening” in stock performance. “We think there are opportunities elsewhere,” she added.
