In Narrow Stock Rally, It’s All Mega-Tech
Much has been made of the recent collapse in market breadth across US equities, and particularly of mega-cap tech outperformance.
Implicit (sometimes it's explicit) is the notion that a narrow rally is an unsustainable rally -- that an index relying on a tiny handful of names to rise is an index that's poised to fall.
I wouldn't necessarily dispute any of that, but as BofA's Michael Hartnett put it last month, employing an imagined, but wholly plausible, quote that could've emanated from a tra
For MSFT GOOG AMZN META estimates and expectations have come down to beatable, margins have largely bottomed, significant cost levers remain to be pulled, and revisions are as likely to be (slightly) positive as negative. For AAPL, I think margins and estimates still have room to decline, but perhaps not enough to alarm investors (Jun qtr estimates coming down didn’t seem to matter), cash flow is prodigious, and cost levers have yet to be seriously pulled. Current growth is scarce but that’s known, and the hope of future growth remains. Valuations look reasonably attractive for two, excessive for two (but negative catalysts seem scarce), who the heck knows for the fifth, and as long as the Fed stays on pause and revisions stay benign, the risk to their multiples seems modest. These are the best companies in the world, by many measures. In a recession, they certainly have downside but it’s not evident that it’s more than the S&P 500 overall, both because of their market position and because of their weight in the index. I don’t loooove these names here, but don’t hate them as I did in mid 2021. I started accumulating these in mid 2022 – incrementally in most cases, except for more decisive buying of META (good decision) and no buying of AAPL (bad decision). Funding from other names – not seeing much reason to increase overall equity exposure.