The brunt of hot inflation readings was borne by the tech-heavy Nasdaq Composite index, which tanked 1.7% on Nov 10. The big players in the space like Alphabet GOOGL lost at least 2%. The other two broad market indices, the S&P 500 and the Dow Jones Industrial Average, also lost 0.8% and 0.7%, respectively, in yesterday’s trading session.
– Zacks
The reason for this tech market slowdown can essentially be the high inflation reading which led to the benchmark 10-year Treasury yields rising by about 11 basis points. It is a fact that growth sectors like tech space feel the pain of rising bond yields as it decreases the relative value of future earnings, making the popular stocks seem overvalued. Tech companies also face hurdles in funding their growth and buying back stocks due to higher rates (per a CNBC article).
Per the latest Labor Department report, the Consumer Price Index (CPI) in October rose 6.2% year over year compared to the Dow Jones estimate of a 5.9% rise, per a CNBC article. The metric was at the highest level since December 1990.
In this regard, Nancy Davis, founder of Quadratic Capital Management, has commented that “Wednesday’s Consumer Price Index showed another month of inflation data well above the Federal Reserve’s inflation target, primarily due to continued supply chain issues and labor shortages. If inflation doesn’t subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” per a CNBC article.
However, technology plays an instrumental role amid the COVID-19 uncertainty in aiding people to maintain safe-distancing norms.
The pandemic has been a blessing in disguise for the e-commerce industry to date as people continue to practice social distancing and shopping online for all essentials, especially food items. Thus, on par with the digitization trend, the upcoming U.S. holiday season is expected to see a significant surge in online sales. The National Retail Federation (“NRF”) projects online and other non-store sales surge of 11% to 15% to reach between $218.3 billion and $226 billion compared to $196.7 billion in 2020. Mastercard SpendingPulse predicts online sales to increase 7.5% during the “75 Days of Christmas” phase.
Certain other ‘new normal’ trends have also emerged amid the health crisis like work from home, increasing digital payments, growing video streaming and soaring video game sales.
Further, the semiconductor space has been gaining from expanding digitization and growing dependency on the Internet owing to some new normal trends like online shopping, work from home, digital payments, digitization of healthcare, rising demand for video gaming and many more. According to the Semiconductor Industry Association (“SIA”), global sales of semiconductors came in at $144.8 billion in the third quarter of 2021, leading to a jump of 27.6% year over year and 7.4% from the second quarter. In fact, the growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are expected to keep the sector brewing with opportunities in 2021.
Technology has played a major role in the ongoing health crisis. Telemedicine and Digital Health are receiving significant importance. In the present era, data management and storage have become integral aspects of healthcare. Thus, with the technological advancements in the healthcare sector and the rising adoption of healthcare IT solutions as well as advantages of cloud usage healthcare, the cloud computing market is on a growth trajectory.
The work-from-home model has bumped up sales of PCs, laptops and other kinds of computer peripherals. According to the latest Canalys report, worldwide PC sales have climbed 5% in the third quarter of 2021 from the previous quarter. Total shipments of desktops and notebooks, including workstations, also came in at 84.1 million units during this period.
Technology ETFs to Keep a Track of
All the factors discussed above highlight the instrumental role that technology plays amid the ongoing COVID-19 uncertainty in aiding people to maintain safe-distancing norms. Thus, investors could consider the following ETFs:
Vanguard Information Technology ETF VGT
The fund seeks to track the performance of the MSCI US Investable Market Information Technology 25/50 Index. It has AUM of $55.63 billion. It charges investors 10 basis points (bps) in annual fees. The fund currently sports a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook.
The Technology Select Sector SPDR Fund XLK
The fund seeks to provide investment results that before expenses generally correspond with the price and yield performance of the Technology Select Sector Index. It has AUM of $49.02 billion. It charges investors 12 bps in annual fees. The fund presently flaunts a Zacks ETF Rank of 1, with a Medium-risk outlook (read: 4 ETF Plays as Buybacks Bounce Back & Likely to Soar Higher).
iShares U.S. Technology ETF IYW
The fund seeks to provide investment results that before expenses generally correspond with the price and yield performance of the Russell 1000 Technology RIC 22.5/45 Capped Index. It has AUM of $9.53 billion. It charges investors 41 bps in annual fees, as stated in the prospectus. The fund currently sports a Zacks ETF Rank #1, with a Medium-risk outlook (read: 4 Sector ETFs & Stocks for Bountiful Returns in November ).
First Trust NASDAQ-100-Technology Sector Index Fund QTEC
The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield of the NASDAQ-100 Technology Sector Index. It has AUM of $4.14 billion. It charges investors 57 bps in annual fees. The fund also flaunts a Zacks ETF Rank #1 at present, with a High-risk outlook.
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Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Alphabet Inc. (GOOGL): Free Stock Analysis Report
iShares U.S. Technology ETF (IYW): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
First Trust NASDAQ100Technology Sector ETF (QTEC): ETF Research Reports
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