Resurgent Tech Stocks Power S&P 500 Back to Record With Dow

  • Fang group and chipmakers have both risen 4 percent this week
  • Rally ocurred amid bullish analyst comments, lower bond yields

The tech rout that has kept traders on edge for weeks is finally letting up. That’s proving to be good news for the whole market.

After erasing almost $400 billion in equity value at its worst point during the June selloff, the Nasdaq 100 Index has risen for six straight days, pulling within 1 percent of its record. Nvidia Corp., an early harbinger of last month’s retreat, has recovered all of its losses from the rout after gaining more than 12 percent this week. The Fang block of mega-cap Internet stocks and the Philadelphia Semiconductor Index also had a good week.

The rebound coincided with a cooling in speculation about rate hikes, bullish analyst comments on the chip industry, the Semicon West trade show and Inc.’s biggest ever Prime Day event. Whatever its proximate cause, the surge has been strong enough to lift the S&P 500 back to a record along with the Dow Jones Industrial Average.

“Investors are gravitating back toward to a lot of the tech stocks,” said Peter Tuz, who helps manage $350 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia. “The fact that leaders are regaining their strength is a good thing for the market. I hope the worst is over.”

Large speculators, mostly hedge funds, missed the rally in tech stocks as data released from Commodity Futures Trading Commission showed they cut net positions in Nasdaq 100 futures for a fourth week. Their net long holdings in Nasdaq 100 minis fell to 31,000 contracts on July 11, the lowest since May 2016.

The Fang block -- Facebook Inc., Inc., Netflix Inc. and Google’s parent Alphabet Inc. -- and the Philadelphia Semiconductor Index have both gained nearly 5 percent this week. Amazon shares climbed back above $1,000 as the company said Wednesday that its third annual Prime Day generated revenue surpassing traditional retailing blowouts like Black Friday and Cyber Monday.

Meanwhile, analysts are turning more bullish on the chip industry. Business conditions are the best since 2010, with demand staying solid across the board with no signs of inventory build, Citigroup Inc. analysts led by Christopher Danely said Thursday. Earlier this week, JPMorgan Chase & Co. raised its 2017 global semiconductor shipment growth estimate, citing strong demand for chips in data centers. Shipments will increase 13.6 percent, according to analyst Hisashi Moriyama, who had previously estimated 11.2 percent.

Among companies, Intel Corp. gained as its updated Xeon platform was unveiled. The product will probably drive the company’s data center segment revenue growth into the double-digit percent next year, according to Needham analyst N. Quinn Bolton. The platform will also boost other players such as Cavium Inc., Integrated Device Technology Inc., and Microsemi Corp., Bolton said.

Investors will get another demonstration of the group’s earnings power as Netflix, Qualcomm Inc. and Microsoft Corp. start the reporting season next week. Analysts estimate earnings from computer and software makers grew 15 percent in the second quarter, double that of the S&P 500 Index.

Tech firms “are encroaching anything from industrials to consumer discretionary” Katrina Lamb, head of investment strategy and research at Bethesda, Maryland-based MV Capital Management Inc., said by phone. “You’re talking about a sector that potentially has very, very far reach into a much broader spectrum of industries.”

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