{"id":6465,"date":"2017-06-01T15:17:13","date_gmt":"2017-06-01T19:17:13","guid":{"rendered":"https:\/\/www.zacksim.com\/?p=6465"},"modified":"2022-02-26T13:19:30","modified_gmt":"2022-02-26T13:19:30","slug":"tech-stocks-running-show","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/tech-stocks-running-show\/","title":{"rendered":"Are Tech Stocks Running the Show?"},"content":{"rendered":"

Henry from Albany, NY asks: <\/em>I\u2019ve noticed that technology stocks seem to running the show lately, and I read an article stating that a large percentage of returns are really only coming from the giant companies, like Apple and Google. I have a two-part question: 1) Do you think this strong performance will continue, and if so, is a portfolio adjustment warranted? 2) Some people have compared this run-up to the 2000 tech bubble \u2013 what do you make of that?<\/p>\n

Mitch\u2019s Response: <\/strong>Thanks for writing, Henry. I\u2019m glad you brought up this topic, as I think it has been on the minds of several investors lately.<\/p>\n

Let me start with an overview of what\u2019s happened in the last five months or so, as it relates to the technology sector. If you look at calendar year 2017, the Information Technology sector has been scorching hot \u2013 up some +20% on the year. The tech-heavy Nasdaq is also near those levels in 2017 with an approximately +15% gain so far. Compare these numbers to the broader S&P 500\u2019s close to +8% year-to-date gain, and you can easily see what all the hype is about.<\/p>\n

You are correct to point out that these numbers showing strength in the broad market are actually a bit deceiving, in that a large share of the gains are being driven by the technology behemoths, namely five of them: Amazon, Apple, Facebook, Microsoft, and Alphabet (Google). As of this writing, these five companies account for about one-third of the S&P 500\u2019s total gains. That is a lot of weight to be pulling. Amazon even made news this week for eclipsing $1,000 per share.<\/p>\n

So, to answer your questions then: #1 is that I am cautiously optimistic that the equities markets on a whole, and the technology sector, will finish positive in 2017. Our earlier forecast here at Zacks Investment Management called for mid-single digit returns for the S&P 500, and we are already there in May. I can\u2019t say with certainty whether the back half of the year will mirror such strength, but our base case here is that equities should be able to chart a course higher with earnings strength that we expect to persist all year. The political risks in this market are growing, but we don\u2019t see any alarm bells just yet.<\/p>\n

That being said, I do not necessarily think it is a good idea to adjust an asset allocation towards having a bigger technology weighting at this stage. Valuations in the sector are high, and many of the gains may have already been posted. If your portfolio does not have any technology exposure at all, my response may be different but purely from a diversification standpoint. Equity investors of all stripes should arguably have a technology weighting in their investment portfolios, in my view.<\/p>\n

Part two of your question asks about comparisons to the tech bubble. The big difference today is that the five companies I\u2019ve listed above actually have substantial earnings and revenue growth, so rich valuations are at least substantiated in part by actual money coming in. That story was way different in 2000, when many of the huge winners at that time weren\u2019t making any money. Even still, we are cautious about seeing just a handful of companies account for a lion\u2019s share of the gains. We like to see a lot of breadth in a healthy market, and that is arguably missing right now. It\u2019s something we\u2019re watching closely here at Zacks Investment Management, but our view at present is to stay the course.<\/p>\n

Even so, \u201cstaying the course\u201d can be easier said than done especially when news is circulating of tech stocks running the show. While we cannot predict the short term, the right investment manager can make an enormous difference over the long haul and help you stay steady. If you’re thinking about working with a manager, read “What to Look for in a Money Manager” – it includes 10 tough questions you can ask any prospective investment manager…download it now with our compliments by clicking on the link below…<\/p>\n","protected":false},"excerpt":{"rendered":"

Henry from Albany, NY asks: I\u2019ve noticed that technology stocks seem to running the show lately, and I read an […]<\/p>\n","protected":false},"author":1,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-6465","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/6465","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=6465"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/6465\/revisions"}],"predecessor-version":[{"id":11014,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/6465\/revisions\/11014"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=6465"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=6465"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=6465"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}