Wall Street is mostly seeing a rough stretch, marked by the sharp selloff in technology stocks beginning Sep 3. The market turbulence could have been a result of people rushing to book profits, probably due to worries over high valuations, uncertainty over another pandemic stimulus-relief package, budget negotiations and the approaching elections. Also, September is historically considered the worst month for the stock market. Per LPL Financial data published in a Yahoo Finance article, the S&P 500 has fallen about 1%, on average, in September since 1950.
However, we must not forget that the technology sector has remained relatively strong amid the coronavirus crisis with big-tech companies showing resilience to the pandemic, which in turn, significantly supported the market momentum this year.
On strong support from tech-rebound, the Dow Jones Industrial Average saw a 1.2% increase on Sep 15. Moreover, the S&P 500 index gained 1.3% and the Nasdaq composite was up 1.9% during the trading session on the same day. Notably, major tech player Apple (AAPL) rose 3%. Tesla (TSLA) surged 12% on rebound in the broader technology sector and supporting comments from Goldman Sachs that demand is rising in China, per a CNBC article. Strength in the semi-conductor space was also observed as shares of major players like Nvidia (NVDA), Micron (MU), Skyworks Solutions (SWKS) and Advanced Micro Devices, Inc. (AMD) picked up.
The rest of 2020 is expected to keep bearing the brunt of the coronavirus outbreak as it continues to spread. Under the prevalent scenario of the surging work-from-home and online shopping trends, increasing digital payments, growing video streaming and soaring video game sales are gradually becoming the “new normal.” With the new trends making way, a few major technology stocks are expected to keep gaining traction from the buoyancy in demand for their products and services.
Evidently, cloud computing has emerged as a key technology in the fight against coronavirus. It is backing organizations in remotely processing a lot of information, developing and running key applications and services, and helping employees across the world collaborate while working. The work-from-home model too bumped up sales of PCs, laptops and other kind of computer peripherals.
Going by The NPD Group report, high growth categories in technology sales witnessed in the June quarter were notebook computers, tablets, monitors, printers, keyboards and mice. The report further states that e-commerce purchases accounted for 69% of consumer technology sales in the second quarter, rising from 48% in the year-ago period.
Also, increasing number of people are resorting to streaming platforms like Netflix, Amazon Prime or Disney+ or turning to social media platforms like Facebook and Twitter for in-house entertainment.
Technology ETFs to Consider
Highlighting the instrumental role that technology is playing with respect to helping people maintain social-distancing norms, The NPD Group’s Future of Tech report forecasts technology sales to see a historic growth rate of 18% year over year in comparison to the year-ago period’s 4% rise in fourth-quarter 2020. Also, e-commerce is expected to represent more than 60% of technology sales in the same period.
Investors seeking to ride the big tech rally 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 an AUM of $35.93 billion and charges investors 10 basis points (bps) in annual fees. The fund sports a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook (read: 5 Top-Ranked ETFs to Taste Apple’s $2 Trillion Market Cap).
Technology Select Sector SPDR Fund XLK
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Technology Select Sector Index. It has an AUM of $34.98 billion and charges investors 13 bps in annual fees. The fund flaunts a Zacks ETF Rank of 1, with a Medium-risk outlook (read: ETFs to Tap Warren Buffett’s Investing Ideas as He Turns 90).
iShares U.S. Technology ETF IYW
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones U.S. Technology Capped Index. It has an AUM of $6.03 billion and charges investors 43 bps in annual fees as stated in the prospectus. The fund sports a Zacks #1 Ranked ETF, with a Medium-risk outlook (read: ETFs, Stocks to Tap Last-Minute Back-to-School Shopping).