Apple 3-peat: What could derail a big tech run in 2022 and what could keep it going?

Three trillion. Apple was the first company to reach a $1 trillion valuation — and $2 trillion — and it’s just 3% away from a three-peat. But better hurry, Microsoft isn’t far behind.

Insiders bail after a big year

2021 was a great year for big tech stocks with Microsoft (NASDAQ:MSFT) up 57%, Apple (NASDAQ:AAPL) up 38% and Alphabet (NASDAQ:GOOG) up 70%. While these companies are breaking all-time-highs, insiders are selling at record pace.

In 2021 (excl. December), S&P 500 insiders sold $63.5B worth of stock — 50% more than all of 2020. Some of the biggest sellers have been founders and CEOs….

• Microsoft’s CEO sold half his stake in Microsoft in November.
• Elon Musk sold ~$12B in stock in the past month — first time selling since 2010.
• Mark Zuckerberg sold ~$4.5B in shares — 7x more than last year.

What does this mean for the markets? Two perspectives…

• The bull: Insider selling increased due to potential tax increases for the wealthy in 2022 — from Biden’s new legislation.
• The bear: Insiders historically tend to sell at peaks and buy at bottoms — per Daniel Taylor, accounting professor of Wharton (via WSJ).

What could derail a big tech run?

— Rising interest rates… At least in theory.

The theory goes: When rates rise, high-growth stocks that relied on borrowing at low interest rates — tend to do worse.

In practice: It’s not so simple.  At time, tech stocks performed well when interest rates increased (data via Fisher Investments):

• 2012-2013 — 10-year interest rates increased from 1.4% to 3.0% — while tech stocks rose 36.9% vs. global stocks returns of 42.3%.
• 2016-2018 — Interest rates increased from 1.4% to 3.2% — while tech stocks rose 69.7% vs. global stock returns of 30.8%.

According to Fisher Investments, tech returns and interest rates had a -0.10 correlation over the past 20 years — i.e. little correlation between the two.

Investors: What could keep big tech on the run?

While Mike Mullaney of Boston Partners (via Bloomberg) also sees interest rates as the largest risk to big tech companies, they could continue to outperform the market thanks to their strong earnings and sales growth — as they’ve done in the recent quarter. When comparing risk vs. reward, it’s hard to find investments as compelling.