By David Randall

NEW YORK (Reuters) – Apple (NASDAQ:)’s rally to a $3 trillion market valuation earlier this week has re-focused investors’ attention on the mammoth growth stocks that accounted for a large chunk of the S&P 500’s gain in 2021, and whether they can continue pushing the index higher in the new year.

Microsoft (NASDAQ:), Apple, Nvidia (NASDAQ:), Alphabet (NASDAQ:), and Tesla (NASDAQ:) accounted for nearly a third of the S&P 500’s total return last year, according to data from UBS Global Wealth Management. That’s more than double the average contributed by the index’s five largest gainers since 1985, the bank said. This year, the index returned 28.7% including dividends.

The explosive growth delivered by giant, tech-focused names has helped fuel the S&P’s meteoric rise over the past decade. Investors are concerned that big tech stocks could struggle to deliver big gains in 2018, due to stretched valuations and expectations of higher Treasury yields.

At 27.9, the forward price-to-earnings ratio of the S&P 500 tech sector is near its highest level since 2004, and well above the 21.3 of the broad market, according to Yardeni Research. Nvidia trades for 56x forward earnings while Tesla (part of the consumer discretionary) trades for 119x forward earnings.

High valuations might make these stocks less susceptible to higher yields. However, the Fed expects to increase rates several times this fiscal year. Saira MALIK, chief investment officer global equity at Nuveen, stated that such stock could be vulnerable.

“The large returns to tech we’ve witnessed in the last year are based in part in supportive monetary policy, which we won’t have in 2022,” she stated.

This was the often fraught relationship between higher yields which could threaten companies’ future earning and technology stocks. Tuesday saw bets on U.S. economy strength fuelling a rise Treasury yields. Tech stocks were weighed down by this, as well as shares of banks, energy companies and industrials.

On Wednesday, tech stocks had another difficult day with the Index falling 0.7%.

Malik has positions in large tech stocks, such as Amazon.com Inc. (NASDAQ:), and she is also investing in energy companies. Pioneer Natural Resources (NYSE:) Co. She expects that the rising demand for jetfuel will benefit her company as both business and leisure travel rebound.

Malik stated that he expects to see greater dispersion as the market returns increase and Covid variants have a less effect on mobility.

Scott Wren is a senior global market strategist and said that increasing concerns about the Omicron wave’s severity could reduce demand for tech stocks. Wells Fargo Investment Institute.

Their earnings are not as sensitive to economic fluctuations so tech stocks often act as a refuge for investors in COVID-19 fears. However, many of these companies have also been able to benefit from the trend towards staying at home over the past two decades.

Wren believes technology stocks will continue to grow at the same pace as the market. But Wren also thinks industrial stocks should outperform the US’s infrastructure spending.

UBS, however, stated Tuesday that large technology companies are no longer as appealing as small companies who do not concentrate on customers.

We no longer see [mega-caps]As the place where you can get high returns on your investment in tech, this is the right spot. Their report stated that they expect cybersecurity, artificial intelligence and big data to bring more value.

Earnings for the S&P 500 information technology sector are expected to have climbed 15.9% for the fourth quarter versus a 22.3% rise for the S&P 500 overall, according to Refinitiv IBES.

According to Jack Janasiewicz (a portfolio manager at Natixis Investment Managers), recent declines in technology stocks of high value suggest that investors are now concentrating on businesses with the potential to pass rising prices on to consumers, as the economy continues its recovery from the coronavirus epidemic.

Recently, he increased his excesses in cyclical industries like financials and homebuilders.

He stated that “we think we have passed the point where people would be willing to place money on tech names simply because they are technology”