Tech stocks show why they're the new safe haven

Apple Employees working on iMac computers © Getty Images

The late 1990s tech boom brought huge changes

(Image credit: © Getty Images)

US technology giants are now behaving like a defensive investment, says John Authers on Bloomberg. While global stockmarkets tanked at the start of this week, high-flying companies such as Apple and Amazon gained again.

That goes to show that the tech pullback that rattled investors earlier this month was a sign of bullishness, not bearishness, says Authers. Growing confidence about economic reopening and hope that a vaccine will deliver us from the pandemic sparked a shift into sectors such as banks that are likely to benefit. This week’s second wave fears undid that, sending them fleeing back into tech. With an “entrenched competitive position” and “relative immunity” to pandemic disruption, technology has become the equity investor’s safe-haven of choice.

This year’s tech rally has drawn comparison with the heady years of the dotcom boom, when investors piled into risky startups, sending the Nasdaq up almost 90% in less than six months. That ended when the index crashed by more than half in the year 2000. But this is no repeat of the tech bubble, Andrew Garthwaite of Credit Suisse tells Market Watch. In a bubble, price/earnings ratios usually hit somewhere between 45 and 72, but the Nasdaq is currently on a comparatively moderate rating of 37. Defenders of today’s rally also like to point out that the likes of Apple and Google are wildly profitable, unlike many dotcom-era stocks.

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Yet the 1990s brought genuine productivity gains, says The Economist. The internet and computers transformed business. By contrast, all the innovation of the 2010s has delivered us only “pitiful” productivity growth. There is talk of the pandemic bringing us all closer to an economy built on “electric vehicles and blockchain”. But for the time being it remains just that: talk.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.