The Tech Takeover

With coronavirus fears seemingly a topic of yesteryear, the S&P 500 and NASDAQ-100 continue to shred records. Both indices are in the green for the year as NDX nears 12,000 and SPX closes in on the 3,500 mark. But how impressive are the rallies in reality? Excluding the top 5 constituents of the S&P 500 would solidify its ‘meh’ performance since the beginning of the year.

As the biggest beneficiaries of the stay-at-home economy, mega-cap tech blockbusters have seen their market dominance expand further. Also known as the FAAMGs, the 5 giants now make up almost 25% of the entire index.

And yet market sentiment towards these trendsetter companies isn’t showing any signs of slowing down. With less than 70 days until the US election, investors are not anticipating the level of turbulence that usually occurs around this time every quadrennial. In fact, a chart by JP Morgan (below) shows that equities are now pricing in zero probability of a US recession. This hints that the outperformance of US equites, and tech giants in particular, may not be over any time soon.

Can the momentum continue?

Along with Apple, another stellar performer that is making daily headlines is Tesla, Inc. stock. Up more than 400% since the beginning of the year, the pioneering automaker simply cannot fend off consumer appetite for its products.

But is the rally sustainable? History is on their side. A recent report shows that a basket of the biggest name brands has relished an average 33% rally a year after splitting their stock.

The announced stock splits for both Apple (4 for 1) and Tesla (5 for 1) are set to take place on August 28th. Yet both investor jewels have more events tilting sentiment further in their favor. Apple is planning the release of its 12th rendering of the iPhone later this year while Tesla is preparing for its inevitable inclusion in the S&P 500.

One issuer, Leverage Shares, is equipping investors with the means of capitalizing on the tech boom using a novel idea – single stock ETPs. With exposures of 3x, 2x, and -1x (short), traders can go long or short leading US equities like Apple, Amazon, Alphabet, Tesla, Facebook, Microsoft and others – all without a margin account.

Oktay Kavrak, CFA – Institutional Sales at Leverage Shares, comments “What we’re seeing is a revolution in levelling the playing field between retail and institutional traders. Once reserved for professional fund managers, experienced investors now have access to the same tools – like using leverage or shorting.”

Oktay adds “Traditional valuations are not able to capture the growth potential of these companies and categorizing them into singular industries is simply inaccurate. Tesla is an automaker, but it also makes batteries and computers for its cars. Amazon is in e-commerce, but AWS is a standalone $10 billion cloud business. Apple makes phones, but it’s also branching out into the healthcare game. Hence, predicting the ceiling for these conglomerates is more challenging than ever. That’s why we have provided a simple way for investors to either capitalize on their momentum or, during uncertain times, hedge their exposures.”