European Stocks Rise due to Tech Giant Earnings Optimism
Companies based in Europe are experiencing an increase in stock value mainly due to the performance of tech giants. By the third quarter of this year, earnings from S&P 500 companies were reportedly almost 46% more than those made in 2020. In particular, the technology sector on the S&P 500 has experienced an increase of 6%. These firms exceeded the expectations forecasted by Wall Street analysts.
Undoubtedly, the coronavirus had a positive impact on the earnings of technology firms. Companies experienced resoundingly robust revenues in part because of global work-from-home policies. These policies changed consumer behaviour everywhere, which in turn led to a higher demand for technology-based solutions. As a direct result, Apple recently became the first tech company to achieve a record-breaking market cap of $2 trillion.
The pandemic has enabled tech sectors everywhere to bring enormous benefits to local stock exchanges. In Japan, for example, Sony Corp.’s 2% increase in tech goods and services caused an almost equal rise on the Nikkei 225. COVID-19’s effects on people’s entertainment options directly impacted this rise.
Hikes in energy prices, coupled with supply chain challenges, are influencing the European situation. The combination of these factors has contributed to record-breaking inflation. Nonetheless, European stocks appear to be performing well. The U.K., for instance, forms a friendly environment for tech unicorns, as does the city of Amsterdam in the Netherlands, where more than 500 fintech organizations are flourishing. Sweden is home to Spotify, the highest valued tech company in Europe. Worth an estimated $16 billion, Spotify is simultaneously the most sizable unicorn in Europe.
This flurry of activity has not escaped the notice of savvy investors. Closely monitoring the performance of tech giant stocks is a crucial investor activity, especially considering the myriad challenges faced by these companies. Included in these issues are supply chain disruptions and increasing demands for sector regulation.
An overriding concern, though, is these companies’ ability to sustain growth amidst setbacks. Stock fluctuations affect even high-growth stocks like Apple and Microsoft, so, unsurprisingly, this would be a concern for investors.
Guarding against such oscillations can be achieved by utilizing exchange-traded funds (ETFs). ETFs are a popular way for investors to get exposed to a wide range of companies that specialize in technology. Over twenty years, the Swiss stock exchange has successfully exposed many investors to roughly 1,600 ETFs. In America alone, there are over 80 tech ETFs. One of the oldest ETFs is the 21-year-old iShares U.S. Technology fund, a $9 billion fund. Mainstays of the fund are tech giants such as Microsoft, Apple, Alphabet, and Facebook.
Fidelity MSCI Information Technology Index is a more competitively priced ETF. It has around 320 stocks of American information technology companies in its portfolio and is worth approximately $3.39 billion. The majority of its assets include shares in Apple and Microsoft.
Investing in tech ETFs reduces the investment risk for investors interested in minimizing repercussions associated with investing in inherently volatile tech stocks. Volatility does not only occur in a downward direction, though. It can also yield spectacular returns for the prudent investor. Giants like Apple, Microsoft, Facebook, and Alphabet make up about a fifth of the stocks listed on the S&P 500. Stocks from these companies perform excellently as their returns are consistently valued across the range of 20-40%.
Circumstances beyond a company’s control can cause their earnings to fluctuate. The actions of a whistleblower at Facebook, for example, have caught the company on the back foot, forcing them to contend with a deluge of negative news stories about their practices. Additionally, Facebook’s quasi-monopoly status coupled with its antitrust behaviours has damaged the company’s stock value.
Similarly, disruptions in the supply chain have plagued various sectors of the economy all over the world. The global shortage of semiconductors has affected everywhere, and Apple is no exception to this trend. Peter Tuz, from Chase Investment Counsel, observes that if the shortage in materials affected Apple’s sales, then the supply chain must be in a very sorry state indeed. Intel’s share prices have also suffered from the same lack of materials.
A clever investor could partner their stocks in the big tech companies with shares in related industries. The VanEck Vectors Semiconductor ETF, for instance, exposes investors to companies that manufacture increasingly scarce semiconductor chips. As with any investment, it is recommended that caution be exercised when considering which ETFs to add to an investment portfolio.
Tech giants are incredibly influential. Almost all financial activities linked to them affect consumer interaction with technology in one way or another. While fear of COVID-19 still lingers, it is highly probable that the likes of Amazon and Facebook will only continue to see increased demand and higher revenue for their goods and services.
Nonetheless, governments in the biggest member states of the eurozone are likely to continue providing financial assistance to local companies well into 2022.
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