June 12, 2020

Breakingviews: S&P 500 recovery is all tech, all the time

by Breakingviews.

At the U.S. stock market’s Covid-19 nadir, the S&P 500 Index had lost over $8 trillion in market capitalization since the start of the year. The benchmark had, by Wednesday, recouped essentially all that to reach a value of $28 trillion. But it’s an uneven story: Apple, Microsoft and their technology peers are up in 2020, but financials, energy firms and many others are still down. This apparent faith in tech’s immunity is misguided.

The two most valuable companies on the planet were worth $1.5 trillion each at Wednesday’s market close. Apple and Microsoft’s gains since the start of the year alone account for the majority of the roughly $850 billion valuation increase in the S&P information technology sector over the period. Along with their IT peers, they helped add a staggering $2.3 trillion to the index since the trough in late March. The sector’s value on June 10 was up even from the February peak of the market, as if the coronavirus hit to the economy never happened.

Tech services like video conferencing and entertainment streaming are justifiably more highly valued than they were. So are the online ordering and home delivery offered by e-commerce giant Amazon.com, currently the third-largest company by market value. The stock of Jeff Bezos’s company is up some 40% this year, boosting its market capitalization by around $400 million. That more than accounts for this year’s gains in the consumer discretionary sector, where Amazon is classified.

There’s an argument that recovery laggards like financial firms, energy companies and industrial groups only deserve more investor love when there is real evidence of an upturn taking hold, with consumer spending, job markets and other economic activity regaining strength. Yet it’s hard not to apply that same logic to most of Apple’s business, for example.

As it is, the iPhone maker, Microsoft and Amazon are between them worth more than 15% of the value of the entire S&P 500. Maybe it’s just that investors are putting too much value and importance on the hardware and software they see and use every day in lockdown. If so, perhaps when they get out and about again they’ll remember there’s more to life than technology and home delivery.

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