Big tech is making a comeback.
Less than six months after large institutional investors began rotating out of growth technology stocks and into value and cyclical securities, fund managers are again buying shares of large tech names such as Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB).
While consumer prices have moved higher in recent months, interest rates have fallen as investors bet that the inflation surge will be temporary. That’s made expensive but high-performing companies such as Microsoft and Amazon attractive again.
A Goldman Sachs basket of software stocks that trade for at least eight times sales is at now at its highest level in three months after a rally of 27% since May 13. Megacap favorites such as Facebook, Alphabet (Google) and Microsoft are back near records after gains over the same span.
The return to technology stocks shows that fund managers with long-term time horizons remain bullish on the potential of growth securities as the re-opening of the U.S. economy gathers momentum.
The U.S. Federal Reserve acknowledged the risks posed by inflation last week and signaled that it’s prepared to raise rates earlier than expected, if need be. The NASDAQ 100 Index, which is tilted toward technology stocks, rose to a record high the day after the Fed meeting.
The prevailing belief on Wall Street continues to be that the spike in inflation will be brief. A recent Bank of America survey of fund managers found that nearly three-quarters (75%) don’t expect elevated inflation to be long lasting.
