Tech stocks are the new 'safety trade' as the banking turmoil stokes market volatility, a Wedbush analyst says
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- Tech stocks are the new 'safety trade' for investors amid the banking turmoil, according to Wedbush's Dan Ives.
- Shares of tech firms staged a comeback this year on the prospect the Federal Reserve may be close to ending interest-rate rises.
- Wedbush's Ives says tech stocks are currently under-owned and still have a "nice upside".
Tech stocks have staged quite a comeback this year after a dismal 2022, mainly on the prospect that the Federal Reserve may be close to ending its interest-rate hikes. The rally may have a lot more to run, according to Wedbush Securities' Dan Ives.
Chipmaker Nvidia is the best performer of 2023 in the S&P 500 index with an 87% gain, followed bty Meta Platforms with 72% and EV-maker Tesla with 59%. The tech-heavy Nasdaq 100 index has jumped more than 18% so far this year, after a 33% plunge in 2022.
Tech stocks still have a "nice upside," according to Wedbush's Ives, who reiterated the firm's start-of-the-year forecast for an advance of more than 20% for the asset type in 2023. And that means tech shares may even gain the status of a safe haven for investors spooked by the recent volatility in other assets thanks to the banking turmoil that erupted earlier this month, according to him.
"While it sounds like Twilight Zone comment to many investors, tech stocks have become the new safety trade with Big Tech names a major beneficiary of this dynamic," Ives, managing director and senior equity research analyst at Wedbush, said in a note.
After a string of bank failures including Silicon Valley Bank and Signature Bank set off a wave of instability across the financial sector this month, investors have raised bets that the Federal Reserve will soon halt its rate hikes, he added.
An end to rate increases would be positive for tech stocks, as rising borrowing costs tend to weigh on such businesses' future earning potential and, in turn, valuations.
Tech firms' recent efforts to increase efficiency by cutting costs also have added to their stock-market appeal.
"Numbers for 2023 have been de-risked by management teams and these tech stocks have been under owned and still remain in that camp in our opinion," Ives said in emailed comments.
He added that Apple firmly remains Wedbush's top tech pick for the year, with Tesla as their favorite disruptive tech name.