2<\/sup><\/p>\n\n\n\n______________________________________________________________________________<\/p>\n\n\n\n
The numbers bear it out. Year-to-date through May 31st, the\nNasdaq is actually in positive territory, with a price return of +6.59%. The\niShares Technology ETF, with symbol IYW, is up +8.85%, while the S&P 500 is\ndown -5.29% over the same period.3<\/sup> Technology stocks outperformed on\nthe way down and <\/em>on the way back up,\nwhile other cyclical sectors took a beating. <\/p>\n\n\n\nI do not see Tech\u2019s outperformance as a fluke, or\nunjustified. Tech earnings are taking a hit, just like every other sector. But\nover the last three months, only Utilities, Consumer Staples, and Health Care\nhave posted better earnings than Tech \u2013 and not by a lot. <\/p>\n\n\n\n
Given the nature of this economic recession, the Tech\nsector\u2019s relative success should come as little surprise to many readers. The\npandemic has dealt a major blow to spending across the economy, but households\nand businesses have relied on technology more than ever to stay connected, and\nin many cases, to continue working. A recent poll of Fortune 500 CEOs found\nthat 75% of companies have \u2013 or are making \u2013 plans to spend more on technology\nin the coming years.4<\/sup> <\/p>\n\n\n\nCorporate America was already well aware that technology\nwould play a critical role in the future of business, and the pandemic is\nmerely accelerating already existing trends in cloud computing, enterprise\nsoftware, remote working capabilities, video conferencing, e-commerce, and\ninvestment in robust technology infrastructure. In a sense, the crisis played\nright into the Tech sector\u2019s hands, and stocks are just responding to the\nsecular trends already underway.<\/p>\n\n\n\n
Does this mean investors should run out and buy more\ntechnology stocks? Not necessarily, in my view. Stocks in the sector\nnotoriously trade at high multiples, and not all technology stocks have robust\nearnings and cash flows. There is also a legitimate regulation risk for the\nsector, particularly as lawmakers catch up to antitrust and data privacy\nissues. The US Justice Department, for instance, has indicated that it may soon file antitrust charges\nagainst Google, perhaps as early as this summer. An antitrust lawsuit brought\nagainst Google today could be one of the biggest in history, bringing back\nmemories of the Justice Department and 20 states joining together to sue\nMicrosoft in the 1990s.5<\/sup> A successful lawsuit against Google could\ncreate a substantial tail risk for other major technology companies.<\/p>\n\n\n\nAnother\nrisk to keep in mind is cyclicality. If the economy starts to pick up steam and\nfear of the pandemic fades into the background \u2013 perhaps because of a vaccine \u2013\nthen investors could use the opportunity to rotate into cyclical sectors that\ncurrently trade at far more attractive multiples than Technology. This outcome\nmay happen sooner than most think. <\/p>\n\n\n\n
Bottom Line for Investors<\/strong><\/p>\n\n\n\nThere\nis little doubt that technology will play a critical role in the future of\nbusiness. Companies across every sector are accelerating plans to invest in new\ntechnology that will allow employees to work remote and keep the business\nmoving even during a lockdown. Technology companies that build infrastructure\nand provide software and services are likely to benefit long-term as a result. <\/p>\n\n\n\n
Investors\ndo not have to go all-in on Tech in order to participate, however, and doing so\nis a risky proposition \u2013 particularly as many new technology companies focus\nmore on growth over cash flows and earnings. An overweight to the Technology\nsector within a broadly diversified portfolio is a smarter approach, in my\nview, giving investors the benefit of exposure to an exciting growth sector in\na risk-controlled way. <\/p>\n\n\n\n
In addition to a diversified portfolio, I recommend looking at the whole picture and making decisions based on data and fundamentals. To help you do this, I am offering all readers our Just-Released June 2020 Stock Market Outlook Report. <\/a><\/strong><\/p>\n\n\n\nThis report not\nonly looks at Tech but highlights several factors that are producing 2020\noptimism right now and contains some of our key forecasts to consider such as:<\/p>\n\n\n\n
- Top four\n“stay-at-home” sectors at play<\/em><\/li>
- What stocks would\ncome to life with a vaccine?<\/em><\/li>
- Top stocks in top\nindustries<\/em><\/li>
- Global outlook\nand job market<\/em><\/li>
- What of consumer\nconfidence?<\/em><\/li>
- U.S. return\nexpectations for 2020 <\/em><\/li>
- Is it time to buy\nstocks in May?<\/em><\/li>
- And much more.<\/em><\/li><\/ul>\n\n\n\n
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!6<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"Why is the Tech sector behaving like Utilities, Healthcare, and other defensive sectors?<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8676","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8676","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\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8676"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8676\/revisions"}],"predecessor-version":[{"id":10595,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8676\/revisions\/10595"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8676"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8676"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8676"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}