Historic tech comeback boosts pension returns

Stock markets are once again approaching record levels despite the conflict in Iran. This is largely due to a strong comeback for technology stocks, which has also pushed pension returns back into positive territory.

The tech-heavy US stock index, Nasdaq, has just completed its best week in over 30 years. With a rise of more than 7 per cent in just five trading days, last week marked the strongest performance since 1992. According to PFA’s Chief Strategist, Tine Choi Danielsen, the progress is partly due to the sector having faced a challenging year, with many stocks experiencing significant price drops.

“Microsoft had its best week in ten years, but the stock had also fallen sharply earlier this year. The same applies to many other technology companies, particularly within the software segment. So, this has been something of a bargain hunt, as prices reached a more attractive level,” says Tine Choi Danielsen.

In addition to technology companies, other sectors – ranging from energy and raw materials to industry and telecommunications – have also fared well despite the recent turmoil caused by the conflict in Iran. As a result, both the leading US stock index, the S&P 500, and the more industry-heavy Dow Jones are once again close to record levels.

“One might think that investors have given up trying to predict the situation in Iran, which changes daily. Instead, the focus has shifted to fundamental economic factors – corporate earnings and the growth outlook, which still appear positive,” says Tine Choi Danielsen.

She notes that despite the progress, there remains significant uncertainty both in the short and long term – the Strait of Hormuz remains closed, and the prospects for resolving the war are difficult to gauge. Looking beyond the market, the signals are therefore more mixed:

“While stocks are back at record levels, consumer confidence is at its lowest point in many years. Over time, these two worlds will converge – either because the conflict is resolved and consumers regain confidence, or because investors adjust their expectations due to ongoing uncertainty about energy prices and the economic impact,” says Tine Choi Danielsen.

She adds that the positive development is also being felt by PFA’s pension customers, with returns reaching 3,5 per cent since the start of the year, while the five-year return stands at approximately 40-45 per cent.