Tech Stocks Seem to Be a Haven From the Banking Crisis for Now

Technology stocks have remained relatively insulated from the turmoil-rattling financial markets. How long that lasts is anyone’s guess.

The tech-focused Nasdaq 100 index was on pace Thursday to outperform the S&P 500 for the 11th consecutive trading session, the longest such streak since a 14-day period that ended in July 2017, according to Dow Jones Market Data.

Tech has been a bright spot in a stock market hit by worries about the financial system’s health. A sharp drop in bank stocks has dragged the S&P 500 down 0.9% this month, trimming its gains for the year to 2.5%. The Nasdaq 100 is up 3.5% in March and 15% in 2023.

Within the S&P 500, the tech and communication-services groups—home to the likes of Apple Inc., Microsoft Corp., and the parent companies of Facebook and Google—have climbed 4.3% and 4.9%, respectively, this month, extending their 2023 gains. The only other segments in the green for March are utilities and consumer staples.

The rise in tech stocks has coincided with a plunge in government-bond yields and hopes that the Federal Reserve is nearing the end of its campaign to raise interest rates. Among the biggest gainers in March are Facebook parent Meta Platforms Inc., which has jumped 13%; Salesforce Inc., which has surged 12%; and networking-equipment provider Arista Networks Inc., which has climbed 11%.

Tech stocks were destroyed last year when the central bank began its tightening campaign, and the market environment favored investments that generated immediate cash for the holder. On the other hand, low yields make many investors willing to pay more for shares of tech companies that they expect to churn out outsize profits in the future.

Share-price performance

The yield on the 10-year Treasury note, which affects things as diverse as auto and student loans and mortgage debt, has dropped below 3.5% from above 4% in early March. Monday’s yield decline on the two-year note, which is particularly sensitive to investors’ interest-rate expectations, was the sharpest since Black Monday in 1987.

And in the derivatives market, investors say it is a tossup whether the Fed will raise interest rates by a quarter point next week or hold them steady. Some traders again call for the central bank to cut rates later this year.

“The writing on the wall is that between the stress on the banking sector and some other economic data out there, we’re getting to the end point here concerning interest-rate hikes,” said Don Calcagni, a chief investment officer of Mercer Advisors for Bloomberg Digital Subscription.

The bounce in tech stocks is surprising to some investors, given the spillover risks from the collapse of Silicon Valley Bank, a big lender to venture capitalists and technology startups. The bank’s failure, which underwent a run on deposits, was the second-biggest in U.S. history. Signature Bank and Silvergate Capital Corp., both competitors in the cryptocurrency industry, have also failed recently. The crisis in confidence crossed the Atlantic on Wednesday when Credit Suisse Group AG shares plumbed new lows.

Sylvia Jablonski, chief investment officer at Defiance ETFs, said she isn’t surprised by investors’ renewed appetite for tech stocks, given how badly they were battered last year. The tech and communication services groups fell about 30% and 40% in 2022, respectively, compared with a roughly 20% drop for the S&P 500.

“Do they deserve to be down that much? Probably not,” she said.

Tech Stocks Seem to Be a Haven From the Banking Crisis

Within the tech sector, semiconductor stocks have been among the biggest winners of late, partly because of the reopening of China’s economy. Intel Corp. and Advanced Micro Devices Inc. have added 14% this month.

The turmoil in the banking sector has increased the chances of an economic downturn, and some investors say that bolsters the case for holding tech stocks. Jason Pride, a chief investment officer of private wealth at Glenmede, said he sees tech as one of the few market areas with the potential to post growth during a recession.

“Technology stocks tend to have more stable businesses and downside protection during more difficult times,” said Mr. Pride for The Wall Street Journal Print Subscription. He added that he is still cautious about the segment because valuations remain elevated, leaving the group vulnerable to further declines.

The tech sector trades roughly 22.5 times its expected earnings over the next 12 months and the communication-services sector trades around 15.4 times. In comparison, the S&P 500’s multiple is about 17.3.

It is difficult to make any longer-term predictions about the market’s trajectory because investors don’t yet fully understand how the crisis in the banking sector will unfold, how quickly inflation will ease, or how the Fed will respond, Mr. Calcagni of Mercer Advisors said.

“We still don’t know if there is another shoe to drop,” he said. “It’s very conceivable that the gains we’ve seen in tech, we give those back. There’s so much stress and so much concern in the market.”