With analysts, investors, and regulators pondering the strength of the banking system, particularly smaller community banks, market participants are looking for safe haven assets. Big tech could fit the bill.
Predictably, the hunt for safe havens is beneficial to gold, as highlighted by the largest bullion-backed exchange traded fund, which gained 5.69% last week amid ongoing contagion effects from the collapse of SVB Financial (NASDAQ: SIVB) — the parent of Silicon Valley Bank (SVB) — and other financial institutions.
At the equity level, investors might be inclined to embrace defensive fare such as consumer staples and utilities in the current environment, but mature technology stocks are offering shelter from the bank-induced storm. Consider this: The Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) each gained nearly 6% last week.
Obviously, there no guarantees in financial markets, but more upside — or at the very least, durability — could be on the way for those exchange traded funds, because market participants are viewing some of the ETFs’ holdings as safety valves amid the banking system calamity.
“Perhaps most important, however, is that parts of big tech can look pretty defensive—especially relative to shakier regional banks or cash-hungry start-ups that are still chasing profitability. That may sound counterintuitive given the sector’s reputation for growth, but if you’re looking for the security of cash, big tech has it in spades,” reported Teresa Rivas for Barron’s.
Apple (NASDAQ: AAPL), which is the second-largest holding in the Invesco ETFs, accounting for 12.26% of the rosters, rallied last week as investors looked for financially sturdy companies with immunity to small bank struggles.
“Apple is famous for its fortresslike balance sheet, backed up with a hoard of cash so big that it has actually been called problematic (a problem we’d all like to have). At the end of its fiscal 2022 year in September, free cash flow had swelled almost 20% year over year to $111.44 billion,” according to Barron’s.
Speaking of cash hoards, Microsoft (NASDAQ: MSFT) and Google parent Alphabet (NASDAQ: GOOG) have $65 billion and $60 billion, respectively, in free cash on their balance sheets. Those stocks combine for about 20% of the QQQ and QQQM portfolios.
“Nonetheless, few analysts doubt these firms’ long-term dominance and resilience. Big tech’s piles of cash also mean these companies don’t have to depend on lenders like Silicon Valley Bank or venture capitalists—unlike start-ups—nor do they need to raise capital when interest rates are still high,” concluded Barron’s.
Month-to-date, investors have poured more than $1 billion combined in fresh assets into QQQ and QQQM.
For more news, information, and analysis, visit the ETF Education Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
