Investors feel much calmer about U.S.-Iran relations and they’re optimistic about trade with China. But U.S. stocks couldn’t have risen as much as they have without the help of fresh optimism on 5G rollouts and other tech developments.
Stocks have risen since President Donald Trump put a pause to fears of a heightened conflict with Iran. The S&P 500 was up 1.26% this week. On Friday the Dow Jones Industrial Average touched an all-time high of 29,008.
Referring to the U.S. tensions with Iran, John Ham, adviser at New England Investments and Retirement Group, told TheStreet, “This is a relief rally.” Plus, "The trade deal is coming along pretty nicely.”
No doubt, with investors holding more cash on hand than usual, valuations far from bubble territory, and a little macro optimism, a few more dollars are being sprinkled into stocks as earnings season approaches.
But the rally would be nowhere near as pronounced without the help of a few themes that are emerging in technology: stronger expected demand for 5G devices and a brightening outlook on some big tech names.
First off, the Vanguard S&P 500 Growth ETF was up 1.94% in the past five days, making it a clear outperformer. For comparison, Vanguard's S&P 500 Value ETF was up 0.38%.
Sectors that would benefit from decreased geopolitical tensions and lower oil costs underperformed this week. Nasdaq’s Industrials index rose 0.78%. Invesco’s S&P Materials ETF edged up 0.05% and its S&P Financials ETF rose 0.45%, with big names like JP Morgan JPM and Citigroup C down a tick.
That’s not to say the rally hasn’t been risk-off; the 10-year treasury yield rose to 1.83% from 1.78% in the past five days. (Bond yields fall when the prices rise.) It’s just been a rally built on particular tech-related developments that have the potential to create substantial upside for large but growing companies.
Apple AAPL was up 5.4% to $309.67 this week. Cupertino has seen upward price-target revisions from several analysts, who see evidence from suppliers that 5G buildouts across the hardware business are ramping up after a slight pause to end 2019.
The tech giant also saw an 18% year-over-year increase in December iPhone sales in China, as the lower-priced iPhone 11, helped by strong marketing efforts, gained traction.
Analysts from firms up and down Wall Street are noting 5G production is ramping up, as the end market (mostly consumer electronics) in China is looking stronger by the week.
On Semiconductor ON indicated to Needham & Co. that 5G infrastructure spending will reaccelerate in the middle of 2020 "as the major mobile operators roll out their 5G base station deployments,” analyst Rajvindra Gill wrote in a note Friday.
In the past week, Cowen analysts upgraded Micron MU and Western Digital WDC, as not only does chip pricing look to be coming out of its year-and-a-half doldrum, but 5G demand looks strong. Micron and Western Digital were up 5.6% and 8.7% respectively this week. Qualcomm QCOM and NXP NXPI, both serious 5G players, rose 5% and 3.2%.
Away from hardware, other large tech names had solid weeks. Facebook FB rose 5.8%. Analysts have been touting its historically low valuation — 23 times next year’s earnings — as an attractive entry point. Instagram remains a promising growth driver. Canaccord Genuity analysts have Facebook in their top five internet picks.
Microsoft rose 3.7% after seeing a higher price target from WedBush Securities analysts, who in checks with companies see evidence of continued long-term growth in cloud services. And Google rose 5.5%.