Are tech stocks more resilient this time

June 12, 2024 3 min read

Tech stocks are a hot topic nowadays. Many people are interested in them, and it’s important to understand their performance. Looking at global stocks, especially those in the US, can be helpful because a lot of data is available. Plus, you might want to invest in these stocks at some point.

Nasdaq vs. S&P 500 Performance

A chart from Bank of America Research shows the performance of the Nasdaq compared to the S&P 500. The Nasdaq, which is full of tech stocks, has often outperformed the S&P 500. This light blue line in the chart shows how the Nasdaq’s price has varied from 1.5 to 3.5 times more than the S&P 500. This shows that tech stocks have had significant price jumps.

Source : Bank of America

Earnings Comparison

In the past, tech stocks had big price jumps that were not matched by their earnings. For example, during the 1999-2000 period, the price of tech stocks increased a lot, but their earnings were very low. The earnings of the Nasdaq as a percentage of the S&P 500’s earnings used to be only about 5-10%. But now, Nasdaq’s earnings are much higher, standing at almost 35-40% of the S&P 500’s earnings.

Today’s Tech Stocks

Today’s tech stocks are not just about high prices without earnings. The current rise in tech stock prices is backed by strong earnings. Companies like Microsoft, Nvidia, and AMD are showing strong performance. This is different from the situation in 1999-2000 when tech stock prices were high but their earnings were not.

S&P 500 Earnings

While the Nasdaq’s earnings have increased, the earnings of the S&P 500 have not shown the same growth. Most of the S&P 500’s earnings are coming from a small number of companies. This means that the overall S&P 500 is not performing as strongly as the Nasdaq in terms of earnings.

Future of the Tech Rally

Given this data, there is confidence that the current tech rally might last longer than previous ones. Even if there is a market correction, tech stocks may not fall as much as they did in 2000. This is because their high prices are now supported by strong earnings.

This makes the current situation more stable compared to the past.

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    Are tech stocks more resilient this time