Lessons to Learn from US Big Tech Performance

The idea that big tech stocks in the US have unstoppable momentum often fades under scrutiny. This was particularly evident during the third quarter of this year. The S&P 500 and many stocks from the so-called Magnificent Seven faced declines due to a sell-off that began late in July. Meanwhile, markets in other regions, such as Asia, showed signs of recovery.

A Shift in Investor Sentiment

Despite the dips, US stocks and many leading companies still performed well in 2024, maintaining a strong presence in investor considerations. This was especially true for passive investing, where purchasing leading stocks and markets can be done easily through conventional tracker funds.

Recent data from the European exchange-traded fund (ETF) market in the third quarter of 2024 reflects this trend. Investors continued to support the largest names within the US equity market. According to analytics from Morningstar, funds focusing on US large-cap stocks experienced significant popularity, indicating a belief in improving fundamentals rather than just chasing exceptional returns.

Investment Trends and Performance

Morningstar reported that funds within the US large-cap blend equity category brought in approximately €14 billion in net inflows during the quarter. Furthermore, the US large-cap growth equity sector attracted an additional €1.4 billion. Many investors also sought US exposure indirectly through global large-cap equity funds.

Morningstar's Jose Garcia-Zarate noted that the overall demand could be attributed to a mix of solid corporate earnings and the anticipated start of the Federal Reserve's rate-cutting cycle. This reduced anxiety regarding the future of the US economy, even with market volatility leading to declines among tech giants in August.

As a result, there was an uptick in investments in equal-weighted S&P 500 ETFs. Funds such as the iShares S&P 500 Equal Weight ETF and Xtrackers S&P 500 Equal Weight ETF became some of the best-selling US large-cap blend ETFs during September, yielding a total return of around 9% for the quarter—outperforming traditional S&P 500 ETFs.

The Emergence of Small-Cap Investments

Investors also showed a growing interest in US small-cap equity ETFs, which enjoyed €1.4 billion in inflows. This marked the largest quarterly inflow since the end of 2020. Garcia-Zarate suggested that investors perceive potential opportunities in smaller-cap stocks as the rate-cutting cycle progresses.

Conversely, it was a challenging quarter for value ETFs. Morningstar's analysis revealed a €0.1 billion outflow from the US large-cap value equity category, indicating a general decline for value ETFs during this time.

Investing, Market, Trends