Are Tech Stocks Staging a Comeback?

Stocks are soaring this morning as bulls attempt to leave yield fears behind. The Dow, S&P, and Nasdaq Composite are all up big while Treasury yields sink.

It’s a flip-flop from last Thursday when yield shock sent the indexes tumbling. But today, nearly everything’s trading for a significant gain. Only eight S&P stocks are sitting on a daily loss as of noon.

And, as expected, growth stocks (primarily tech) are leading the recovery. They were the biggest losers last week.

Now, Big Tech’s attempting to put an end to value’s recent resurgence. If the bullish upswing’s going to last, though, yields need to climb slower from here.

“With a lot of the move in yields due to the improving growth outlook and reopening prospects, risk appetite is holding up,” explained Esty Dwek, head of global strategy at Natixis Investment Manager Solutions.

“The pace and scale of the move in yields is more important than the absolute level, suggesting that as long as the move is gradual, risk assets should be able to absorb them.”

The market doesn’t necessarily dislike rising yields. It does, however, hate a rapid yield spike. Last week, that’s exactly what happened. And it caused a quick, market-wide sell-off.

But so long as rates don’t accelerate in a similar manner, the major indexes have a legitimate shot at an uptrend continuation.

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“Investors ask whether the level of rates is becoming a threat to equity valuations. Our answer is an emphatic ‘no,‘” said David Kostin, Goldman Sachs’ chief U.S. equity strategist, in a note to clients.

“Our bullish U.S. equity view has already embedded expectations of rising interest rates.”

Peter Boockvar, CIO at Bleakley Advisory Group, shares a similar view.

“Equity investors are still looking at the rise in rates mostly as ‘a good thing’ and not yet as a threat notwithstanding some shaking of the tree in high multiple stocks and other parts of the market last week,” Boockvar said.

“The benefits of the vaccines vs the challenge of higher rates will be the theme this year.”

But that doesn’t mean the rally’s back on quite yet. The S&P, despite rocketing higher this morning, is still below its recent all-time high. So too is the tech-heavy Nasdaq Composite, which is offering traders a chance to “buy the dip” on some top-flite tech names.

Even if the index stalls at its all-time high, some quick short-term gains stand to be made.

Long-term, the same dangers persist – inflation, a sluggish labor market, and a worse-than-expected stimulus package. That makes doubling-down on bullish bets a risky proposition.

But it’s not stopping investors from sinking their teeth into stocks like Apple (NASDAQ: AAPL), which is up over 4.00% as of noon. Over the next week, it might be a good idea to start sizing up long positions in similar companies.

Many stocks could easily surge if traders feel like they have the “green light” to buy again. That’s not to say a long-term bull run continuation is guaranteed.

It’s most certainly not.

What does seem probable, however, is a short-term rally for a handful of beat-up stocks, concentrated primarily in the tech sector.

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