After a brutal correction in April, the technology giants have strongly rebounded, driving a recovery in the US stock market in May. However, amid the lingering shadow of Trump's tariff policies and uncertainties regarding the economic outlook, investors are facing tough choices.
Technology stocks made a strong comeback after experiencing turbulence at the beginning of the year, a rebound scenario that investors are familiar with, especially as they hope the market decline in April becomes a thing of the past.
In the first four months of 2025, these technology giants known as the "seven giants" ($Magnificent Seven (IP000046.IP)$) once fell from grace, but after President Trump announced a series of strict and broad trade tariffs on April 2, triggering a market sell-off, they became the main force behind the stock market rebound in May.
Investors are now pondering whether technology stocks can continue to lead for the year.$American Financial (AFG.US)$And if the market experiences turbulence again, how should the investment portfolio be adjusted?
According to FactSet data, the Roundhill Seven Giants ETF has risen 18.2% since its low point on April 8. This ETF holds an average of seven technology giants:$NVIDIA (NVDA.US)$、 $Apple (AAPL.US)$ 、 $Alphabet-C (GOOG.US)$ 、$Meta Platforms (META.US)$、$Microsoft (MSFT.US)$、$Amazon (AMZN.US)$and$Tesla (TSLA.US)$。
"The oversold condition in April prompted investors to flock back to these former market leaders, as the market expected trade tensions to ease and the USA economy to potentially avoid falling into recession," said Anthony Saglimbene, Chief Market Strategist at Ameriprise.
In a phone interview with MarketWatch, Saglimbene stated that strong first-quarter Earnings Reports helped the "Magnificent Seven" rebound from April's lows, also bringing investors back to these large-cap technology companies, despite ongoing market concerns about the sustainability of AI themes and the long-term profitability of these companies.
At the same time, the valuation of large technology stocks has declined, making them more attractive to investors. According to Dow Jones market data, the forward PE of the Roundhill Magnificent Seven ETF fell to about 23 on April 8, down from around 30 at the beginning of the year, marking the lowest level since the fund's inception in April 2023.
Despite the rebound of the "seven giants" in the past two weeks providing some comfort for retail investors actively bottom-fishing in the market, their performance year-to-date still has not caught up with the Large Cap. As of now,$S&P 500 Index (.SPX.US)$the sectors related to Technology are still lagging behind the Large Cap and defensive sectors, showing investors' cautious attitude towards whether Technology stocks can rise again.
Another warning sign is that from 2025 to now, the Consumer Discretionary Sector of the S&P 500 has dropped by 11.7%, the Information Technology Sector has declined by 8.2%, and the Communications Services Sector has fallen by 4.5%, according to FactSet data.
In stark contrast, traditional defensive sectors—utilities and consumer staples—have become market highlights in the first few months of 2025. So far, the Utilities Sector of the S&P 500 has risen by 5.8%, and the Consumer Staples Sector has increased by 4.4%.
At the beginning of 2025, due to concerns about economic growth and the impact of Trump's new round of tariff policies, investors mostly leaned towards adopting defensive strategies.
However, the strong Earnings Reports from technology companies today have put many investors in a dilemma—whether to continue betting on a technology rebound or to remain defensive.
Barclays pointed out that the first quarter's Earnings Reports show that the gap in profit growth between technology giants and non-technology companies has further widened.
In the first quarter of 2025, the EPS growth of large technology firms exceeded expectations by 8%, while non-technology firms failed to meet expectations. The firm's strategist team noted in their client report on Thursday.
According to data from Janus Henderson Investors, the performance of cyclical stocks is expected to continue to outperform defensive stocks until 2027.
In addition to tariffs impacting international sales, investors are concerned that after US companies launch the DeepSeek platform in China, there may be excessive spending on AI infrastructure, which is also a reason why Technology stocks are under pressure this year.
"The first-quarter earnings trends show that cyclical sectors like Technology and Communications still exhibit resilience, while the earnings expectations for defensive sectors such as utilities and food producers remain flat or slightly down," said Jeremiah Buckley, portfolio manager at Janus Henderson Investors.
However, some strategists remind that the "Seven Giants" should not be directly compared with defensive stocks, as they attract different types of investors.
Stocks in the utilities, consumer staples, and Medical Care sectors are typically seen as defensive stocks because their industries are less affected by economic cycles, helping investors hedge portfolio risks.
"Quarterly earnings growth for defensive stocks typically isn't as strong as that of Technology stocks, but if trade wars escalate or a recession hits, these companies usually perform more robustly... you're essentially buying 'Insurance,'" said Mike Cornacchioli, Senior Vice President of Investment Strategy at Citizens Private Wealth, in a telephone interview.
Editor/rice
