SAN JOSE — Wall Street is googly eyed over the Dow’s march toward 20,000 points, but so far in 2017, tech stocks have outpaced the high-profile Dow Jones industrial average with little fanfare.
The Dow has risen in 2017, but only by a modest 0.6 percent. It has flirted with the 20,000-point milestone several times in recent weeks and even came within a fraction of a point of the pinnacle Jan. 6 before retreating a bit.
In contrast, the tech-focused Nasdaq composite index set record highs at closing over a five-day stretch through Wednesday. So far in 2017, the Nasdaq is up 3.6 percent.
Experts say tech stocks have surged because Wall Street is now convinced that a Donald Trump White House will be far friendlier to tech firms in Silicon Valley and elsewhere than analysts once thought.
The animosity from tech executives toward Trump during the bitter presidential campaign prompted an initially grim assessment from investors about Silicon Valley’s prospects under a Trump administration. From the morning after the Nov. 8 election through Dec. 30, the last trading day of 2016, the Dow jumped 7.8 percent. Over the same stretch, the Nasdaq rose by about half that amount, 3.7 percent, partly because of concerns that Silicon Valley would be on the outs with Trump.
But Trump’s meeting with several top tech executives last month at Trump Tower helped to persuade investors that the rapprochement could turn things around for the technology sector.
“Particularly after the meeting of tech leaders with Trump, the concerns about a backlash against tech never materialized,” said Rob Enderle, an Oregon-based analyst who tracks the technology sector. “It looks like the new president will be positive for business in general and tech in particular.”
Peter Thiel, a billionaire tech entrepreneur and venture capitalist, is one of the few Silicon Valley figures who publicly supported Donald Trump. Enderle believes Thiel can be particularly helpful in creating a conduit between the new administration and the tech world. Thiel was one of the prime movers behind Trump’s meeting with tech executives soon after the election.
Wall Street also appears to be betting that tech firms will benefit from an array of Trump tax policies. The incoming president has proposed business-friendly cuts in regulations and lower corporate taxes that could encourage tech companies to haul overseas assets back into the United States.
“Cash is what the Street cares about,” said Jeffrey Elfont, president of Walnut Creek-based Pinnacle Capital Management. “The stock markets are factoring in the repatriation of cash from the tech industry’s overseas assets at favorable tax rates. This should lead to higher dividends and more stock buybacks, and investment in operations.”
Solid fundamentals for the technology sector also could be a factor in tech stocks’ recent rise, said Tim Bajarin, principal analyst with Campbell-based Creative Strategies, which researches the tech industry.
“Demand for technology is strong, and that demand is not going to go away,” Bajarin said. “Demand will only become more pronounced. When it comes to moving the world from analog to digital, we are only about 50 percent of the way through that journey.”
But is this rally getting ahead of itself? Silicon Valley in the late 1990s provided the primary air to inflate a tech bubble that imploded in early 2001. That combined with the Sept. 11, 2001, terrorist attacks a few months later to unleash a recession.
A tech bubble might be in the offing, said Chris Shipley, an independent analyst based in Redwood City.
“Are we in a tech bubble? Probably. Is it of our own making? Certainly. Will it have an unexpected burst? I don’t see that on the horizon,” Shipley said. “At this point, we see more of a distributed digital economy. During the dot-com era, we were all betting on the same inflated numbers.”
Tech’s rally so far in 2017 has helped to boost both the Nasdaq composite and the Dow, as a handful of Dow components are tech companies that trade on the Nasdaq. But the Nasdaq composite has risen faster this year because it reflects far more tech companies’ rising shares, while other non-tech Dow companies haven’t fared as well.
Exhibit A in the tech rally: Cupertino-based Apple is one of the best performers among the Dow’s 30 component companies, despite some skepticism about its ability to innovate under CEO Tim Cook. Apple has gained 2.9 percent during the early trading days of 2017.
Apple’s stock gains have far outpaced other tech components of the Dow, such as IBM, Microsoft, Intel and Cisco Systems.
Among companies contributing to the Nasdaq composite’s surge, Alphabet has rocketed 4.9 percent higher during 2017. Alphabet owns Mountain View-based internet behemoth Google.
“Everything that goes up must come down, and we know it’s not going to last,” said Michael Tchong, founder of Las Vegas-based Ubercool Innovation, which tracks tech trends. “But I think a lot of this rally is tied to Apple. As Apple has recovered, the Nasdaq has recovered. And Google is adding to that.”
But it’s not just big names such as Apple and Google that have posted robust stock performances. Bay Area tech stocks in general have fared well so far this year.
The SV150 Index, which tracks the aggregate performance of the 150 largest tech companies in the Bay Area, is up 4 percent in 2017. The SV150 has risen more than six times faster than the Dow this year.
Among the 10 most valuable tech stocks in the SV150 Index, besides Apple and Google: Menlo Park-based Facebook has soared 11.6 percent; Los Gatos-based Netflix has jumped 8 percent; San Jose-based Adobe Systems has surged 5.4 percent higher; Redwood City-based Oracle has risen 2.1 percent; Foster City-based Gilead Sciences has climbed 2.1 percent; Santa Clara-based Intel is up 1.4 percent; San Jose-based Cisco Systems is down 0.5 percent; and Santa Clara-based Nvidia has fallen 3.1 percent.
Although not every Bay Area tech company has joined in the surge so far in 2017, experts such as Bajarin expect this year’s broad tech-sector gains to persist.
“We have a minimum of 10 to 15 more years of strong growth in the technology sector because of the demand as we bring more digital technology to the masses,” Bajarin said.
