SVB Financial's troubles might have sparked the latest round of stock market woes, but despite the lender's ties to Silicon Valley, the technology sector has been remarkably resilient during the selloff.
It’s obvious no matter how you cut it. Over the past five trading days through Thursday’s close, the S&P 500 is roughly at break-even, while the Nasdaq Composite is up more than 4%. The tech stock index is up nearly 16% year-to-date, helped by its rally in January, compared with just over 3% for the S&P 500
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</p><div> <p>Sector exchange-traded funds tell the same story. In the past week, the Technology Select Sector SPDR Fund (ticker: XLK) is up 4.1%, putting it up about 17% for the year.
The largest technology companies have performed similarly. Shares of poster child Apple ( AAPL ) are up 3.8% over the past five days, lifting the stock 25% so far in 2023; Microsoft ( MSFT ) is up 9.9% and 15.3% during those periods. Likewise, Google parent Alphabet's stock ( GOOGL ) is up 8.8% this week and 12.6% this year.
The technology sector's gains provide a contrast from the beleaguered financial industry. For example, the Financial Select Sector SPDR fund ( XLF ) is down 3.5% over the past five days and 6.7% year-to-date. Not surprisingly, the SPDR S&P Bank ETF (KBE) has been hit even harder, falling 8.5% over the past five days. Before this week, it had been in the black for 2023; now it is down almost 16% for this year.
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There are a few reasons why technology stocks have thrived despite the decline of one of the sector's favorite lenders. The tech still has momentum from earlier this year and is still working on its steep 2022 declines.
Perhaps most importantly, though, parts of big tech can look quite defensive – especially compared to shakier regional banks or cash-hungry start-ups still chasing profitability. It may sound counterintuitive given the sector's reputation for growth, but if you're looking for the safety of cash, big tech has it in spades.
Apple is famous for its fortress-like balance sheet, backed by an amount of cash so large that it's actually been called problematic (a problem we all want). By the end of its 2022 fiscal year in September, free cash flow had grown nearly 20% year over year to $111.44 billion.
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Likewise, when Microsoft's fiscal year ended at the end of June, the company had $65 billion in free cash flow on its books. Alphabet ended 2022 with $60 billion in free cash flow, roughly double the level at the end of 2019.
These companies are certainly not immune to the broader economic environment: In a recession, fewer people may upgrade their iPhones or invest in new tech equipment or services. Nevertheless, few analysts doubt the long-term dominance and resilience of these firms. Big tech's piles of cash also mean that these companies don't need to rely on lenders like Silicon Valley Bank or venture capitalists—unlike startups—nor do they need to raise capital when interest rates are still high.
For investors looking for a pot of gold this St. Patrick's Day, big tech could be the place to look.
Write to Teresa Rivas at teresa.rivas@barrons.com
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