News analysis

US tech stocks falter but market undeterred

NEW YORK • Apple, Google parent Alphabet, Microsoft, Amazon and Facebook, the five largest United States technology stocks, have seen their combined market capitalisation fall by about US$120 billion (S$166 billion) over a week till Thursday.

By then, the S&P 500 technology index had seen its largest five-day drop in a year. The slide was again led by sector heavyweights Apple and Alphabet, as investors moved away from what was the year's best-performing sector and rotated portfolios into stocks that pay higher dividends amid some signs of US economic weakness.

Barclays analyst Mark Moskowitz wrote that Apple is near the peak valuation levels in its iPhone 6 cycle, which "could mean a bumpy ride lower" if the prospects for sales of its next phone disappoint.

Some investors were selling technology shares to rotate into other sectors, such as beaten-down energy stocks, said Mr Russ Koesterich, co-portfolio manager of BlackRock Global Allocation Fund.

The recent decline notwithstanding, the technology sector remains the best performing so far this year, up 17.4 per cent versus the overall S&P 500 index gain of 8.6 per cent. Companies, including Apple and Google parent Alphabet, have seen their stock prices soar this year, and their heavy weightings in benchmark stock indexes prompted concerns that overall market gains are too concentrated in a handful of large technology firms.

"We sensed over the last four to five weeks, that clients were becoming uncomfortable with the clustering of returns to the S&P 500," said Mr Julian Emanuel, executive director of US equity and derivatives strategy at UBS Securities.

Concern over the earlier gains in technology stocks this year has been compounded by some recent weak US economic data.

On Wednesday, the US Commerce Department said that retail sales fell 0.3 per cent last month, marking the largest one-month decline since January of last year. Also, the Labour Department said its consumer price index dipped 0.1 per cent last month, the second drop in inflation in three months.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 17, 2017, with the headline 'US tech stocks falter but market undeterred'. Print Edition | Subscribe