Investors Flock to Apple and Microsoft During Bank Stock Rout

Most of the damage to technology stocks during the fallout from the collapse of Silicon Valley Bank has been concentrated in companies that provide services in the financial industry.  Despite Silicon Valley Bank’s association with the technology sector, the Nasdaq 100 Stock Index ($IUXX) (QQQ) has outperformed the S&P 500 Stock Index ($SPX) (SPY)by one percentage point since last Thursday as financial stocks tumbled.

The turmoil in financial stocks has prompted investors to pile into cash-rich stocks like Apple (AAPL) and Microsoft (MSFT), which rose more than +1% Monday, helping push the Nasdaq 100 higher.  That contrasts with the selloff in companies on shakier financial footing, as investors flee the most speculative stocks.  Seabreeze Partners said the collapse of SVB Financial Group “is a bonafide black swan event that will have broader ramifications.”

Firms that provide software and other services in the financial industry are feeling the brunt of the banking turmoil.  Q2 Holdings (QTWO), whose software is used by regional banks for online banking, has plunged 35% in the past three trading days.  The company had over 1,200 financial institution customers, including Silicon Valley Bank, at the end of last year.  NCino Inc (NCNO), which lost 19% in the past three sessions, operates a software platform used by banks for signing up new customers and loan originations and had 390 firms under contract for its bank operating system as of January 31.

A basket of unprofitable technology companies tracked by Goldman Sachs has fallen -7.3% since SVB Financial Group’s problems emerged last Wednesday, compared with a decline of -3.4% for the S&P 500.  On Monday, many of those stocks rebounded on falling Treasury yields.  Until last week, that same basket of unprofitable stocks was up more than 20% this year after plunging 62% in 2022 as soaring interest rates prompted investors to dump those unprofitable companies.

The recent selloff in financial stocks has sparked an influx of money into Apple and Microsoft, which have become a haven in turbulent times as investors gravitate toward companies with solid balance sheets and durable revenue streams.  Phoenix Financial Services said, “Apple and Microsoft are not only great businesses, but they have all the money in the world, which means they are pretty safe.  The rotations into these big-tech names are not only because they have the biggest cash flows and the biggest cash piles, but also because people see a better second half of the year.”

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