(Bloomberg) -- While investors are concerned about a sustained selloff in US technology mega-caps, Barclays Plc strategists say a robust earnings outlook means the cohort is still attractive after the recent rout.
The team led by Venu Krishna raised its year-end target for the S&P 500 Index to 5,600 points from 5,300, citing solid profit expectations for big tech. Their forecast implies a gain of about 0.6% from current levels, and is above an average of 5,431 among strategists tracked by Bloomberg.
The “recent selloff looks contained,” Krishna wrote in a note. “While our valuation assumption for big tech is high, growth-adjusted multiples are reasonable and we expect the group to earn into its valuations.”
Technology stocks sank last week as investors flocked to shares of smaller companies, betting that they would finally get a boost from expected Federal Reserve rate cuts. The technology-heavy Nasdaq 100 posted its biggest weekly drop since April, and a rebound this week looks fragile.
The team at Barclays said the selloff appeared to be driven by systematic or technical factors rather than fundamentals. Data from Citigroup Inc. showed bullish bets on the Nasdaq 100 retreated from a three-year high last week. Even so, positioning is still extended.
Barclays’ Krishna said the “pain trade” could have further to go, “but we see it as an opportunity to reset valuations as focus shifts to second-quarter earnings.”
Analysts expect the biggest technology stocks — the so-called Magnificent Seven group comprising Apple Inc., Amazon.com Inc., Nvidia Corp., Alphabet Corp., Microsoft Corp., Tesla Inc. and Meta Platforms Inc. — to post a 30% jump in earnings for the second quarter, according to data compiled by Bloomberg Intelligence.
While that’s slower than a 51% increase in the first quarter, it’s still far above the 9.9% growth expected for the S&P 500 as a whole.
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