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It may be time to rotate away from the ‘megacap’ tech names, Millet Tabak says.
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U.S. stocks are surging at the start of the week after former Vice President Joe Biden declared victory in the election, and as Pfizer said its vaccine candidate was more than 90% effective in preventing COVID-19.
After strong gains last week, the markets finally had the first chance to react to a Biden win, which is according to the Associated Press and other media outlets, following days, and even months, of uncertainty.
But that wasn’t even investors’ main focus, however, as drugmaker Pfizer and biotechnology company BioNTech said their vaccine candidate was more than 90% effective in preventing COVID-19.
The news has overshadowed the fact that the U.S. COVID-19 case tally is nearing 10 million, following the fifth straight day of over 100,000 new cases. Biden’s transition team perhaps eased some fears on Monday, announcing a new coronavirus task force.
The Dow Jones Industrial Average DJIA, +4.83% surged close to 5%, signaling a continuation of last week’s gains, which saw the technology-heavy Nasdaq COMP, +0.85% gain 9% — its best week since April 9.
In our call of the day, Miller Tabak’s chief market strategist Matt Maley said some rotation within the technology sector was a good idea for the rest of the year, most notably into chip stocks.
The asset manager stuck to its belief that a “strong year-end rally” was ahead, with history indicating markets tend to rally at the end of election years and the Federal Reserve ready to provide plenty of liquidity.
However, after the FAANG stocks — Facebook FB, -2.11%, Apple AAPL, +1.76%, Amazon AMZN, -2.36%, Netflix NFLX, -6.04%, and Google parent Alphabet GOOG, +1.86% — rallied in election week, Maley said it was time for investors to reduce their exposure to the “megacap” names. While he recommended rotating into value, he said it wasn’t time for investors to abandon the tech sector altogether, in a note Saturday.
“There’s no question that it was a strong rally, but quite a few other tech stocks saw very nice gains as well. In fact, many of those “other” tech stocks have broken to new highs, while only one FAANG stock [Alphabet] did the same thing.”
Chip maker Micron MU, +3.08% looked “very enticing” on a technical basis, he said, as it was testing its June and July highs after being hit in August. Its peers Nvidia NVDA, -2.89%, Texas Instruments TXN, +1.62%, AMD AMD, -0.24%, and Taiwan Semiconductor TSM, -1.03% also enjoyed breakouts last week, Maley noted.
“This does not mean that FAANG names cannot rally further in a year-end rally. However with other tech stocks making new highs…and with the “momentum-driven” strategies becoming so prevalent recently, we believe that a lot of that momentum money [will] no longer go into those small number of FAANG names. Instead it will be more spread out,” he said.
“In fact, we think more of that money will likely go to the names that are actually breaking to new all-time highs,” he added.
The markets
After gaining 6.9% last week, the Dow Jones Industrial Average DJIA, +4.83% surged on Monday, briefly hitting all-time highs, as global stocks rallied on Pfizer and BioNTech’s encouraging vaccine update. The S&P 500 SPX, +3.28% also climbed 3%, while the Nasdaq COMP, +0.85% edged 0.7% higher. European stocks also climbed in early trading, with the pan-European Stoxx 600 FXXP00, -0.10% gaining 4% and the German DAX DAX, +4.93% up 4.9%, while Asian markets rose overnight.
The buzz
Goldman Sachs economists have cut growth forecasts for the U.S. and Europe, citing fears over the COVID-19 spread and fresh lockdown restrictions.
The European Union will bring tariffs against the U.S. following a World Trade Organization ruling last month, according to media reports citing EU Executive Vice President Valdis Dombrovskis.
The Turkish lira rallied on Monday after the resignation of the country’s finance minister, Berat Albayrak, and the firing of Turkish central bank governor, Muray Uysal. The dollar USDTRY, -4.78% dropped 4.7% to 8.1244 lira, though the dollar is still up 37% this year.
German chip maker Infineon IFX, +3.55% said net profit fell in the fourth quarter of the fiscal year and announced it would cut its dividend due to the impact of the COVID-19 pandemic. However, the company said it expected sales to grow 23% in the coming year.
U.K. house builder Taylor Wimpey TW, +18.61% said it expected 2021 profits to beat the market consensus as the steady recovery from the COVID-19 pandemic continued. It also expects 2020 full-year results to come in at £270 million ($354 million) — toward the top end of the market consensus.
President Donald Trump’s lawyer Rudy Giuliani gave a press conference on Saturday in an unusual location — outside a landscape and garden center on the outskirts of Philadelphia.
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