Sticking with U.S. tech surge
Market take
Weekly video_20240624
Carolina Martinez Arevalo
Opening frame: What’s driving markets? Market take
Camera frame
U.S. stocks have climbed to all-time highs thanks to the technology sector.
We’re less concerned than some about the small group of tech stocks driving gains.
Title slide: Sticking with U.S. tech surge
1: Tech sector rolls on
Tech stocks have surged this year, fueled by excitement over artificial intelligence and investor preference for quality given greater macro uncertainty.
Tech firms have so far been able to deliver on and beat lofty earnings expectations, with earnings growing 23% year over year in Q1.
2: Strong balance sheets
We also like tech for its strong balance sheets and we are less concerned about valuation metrics.
Tech firms have free cash flows as a share of sales that are nearly doubled those of the broader market and they have the highest margins across sectors.
3: Broadening gains
Though at a slower pace than tech, other sectors are also seeing gains this year.
This is due to a recovery in margins as cost pressures ease and support from nominal GDP growth that looks set to remain above the pre-pandemic average.
Outro: Here’s our Market take
We’re less concerned by concentration in U.S. tech stocks.
We stay overweight U.S. stocks on a six- to 12-month, tactical horizon and still prefer the AI theme.
As stock gains broaden, we still favor healthcare given support from recovering earnings, drug innovation and demographic needs. And we like industrials as they’ll help build out AI infrastructure.
Closing frame: Read details:
www.blackrock.com/weekly-commentary
We see a small group of tech winners leading stock gains as a feature of the artificial intelligence (AI) theme – not a flaw. We stay overweight U.S. stocks.
The S&P 500 notched a fresh all-time high last week, led by tech stocks. U.S. 10-year Treasury yields held steady near 4.25% during the holiday-shortened week.
We’re eyeing to what extent U.S. PCE inflation for May shows a slowing of services inflation after upside surprises earlier in the year.
U.S. stocks have climbed to all-time highs thanks to the technology sector. We’re less concerned than some in the market about the small group of tech stocks driving gains. Why? First, excitement over AI is being met by tech firms delivering on and beating high earnings expectations. Second, profit margins for tech are leading the market, but they’re also recovering in other sectors as cooling inflation eases costs pressures on margins. We stay overweight U.S. stocks on the AI theme.
Market backdrop
The S&P 500 notched a fresh all-time high last week, led by tech stocks. U.S. 10-year Treasury yields held steady near 4.25% during the holiday-shortened week. Since France’s snap parliamentary election was announced, spreads of 10-year French government bond yields over German bunds have hovered near their widest levels since the euro area crisis. The Bank of England left rates unchanged – but we think it will likely start rate cuts in August after the early July election.
We’re eyeing May U.S. PCE data – the Fed’s preferred inflation measure – for signs that services inflation is easing. Cooler-than-expected U.S. CPI data for May showed falling core goods prices. But sticky services prices mean inflation will continue to outpace the Fed’s 2% goal in the medium term.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of June 20, 2024. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.
U.S. consumer confidence
U.S. durable goods
U.S. PCE; Japan unemployment data
China NBS manufacturing PMI
Read our past weekly market commentaries here.
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