From Sanghamitra Saha:
Technology stocks are on fire, having logged their best six-day stretch in seven and a half years, per Dow Jones Market Data, as quoted on The Wall Street Journal. Microsoft Corp. MSFT, Apple Inc. AAPL, Amazon.com Inc. AMZN, Facebook Inc. FB and Alphabet Inc. GOOGL injected about $330 billion in market value together over the past five trading sessions.
Tech-heavy Nasdaq-100-based fund Invesco QQQ ETF QQQ added 4.1% in the past five trading sessions, trumping the S&P 500’s 2.5% gains. Below we highlight the reasons that led to the monumental rally.
Tech stocks, which are highly vulnerable to the U.S.-China trade war, were battered in May. Moreover, in early June, tech behemoths were crushed by talks of an antitrust probe. The pain in the tech space was so acute that Nasdaq slipped into correction zone. The space lost $515 billion from the end of April through Jun 3, per Wall Street Journal (read: Nasdaq Correction Zone: Short Index With These ETFs).
Such selloffs made valuations lucrative for tech biggies. But the fundamentals of the sector are pretty strong. Rising enterprise spending and emerging technologies like cloud computing, artificial intelligence and big data are acting as catalysts for the tech sector. Global spending on technologies and services to shift companies to the digital age is expected to reach $1.8 trillion by 2021, per data from International Data Corp (read: 5 Tech ETFs raving Trade Tensions in May).
As a result, the most-battered tech areas got a good boost from the latest resurgence. The trade-war-inflicted PHLX Semiconductor Index rallied 2.5% on Jun 11 on trade optimism, outstripping the broader sector’s 1% gain.
Talks of Rate Cut by Fed
Fed’s dovishness for 2019 is a key tailwind. The Fed has not enacted any rate hike so far this year and remains patient about the future course too. There are high chances that the Fed could cut rates ahead given downbeat jobs data for the month of May and worries about global growth slowdown. Several central banks like the ECB and BoJ are still practicing negative interest rate policies. So, chances of a continued spell of cheap money inflows has every reason to push the high-growth tech stocks higher (read: ETFs to Win After Soft May Jobs Data).
Trade Tensions Take Backseat
Though the past month has been fraught with U.S. trade tensions with China and Mexico, the conflict with the latter has cooled down of late. The United States and China will also hold a discussion in the G20 meeting slated later this month in Japan after which additional tariffs on Chinese goods will be decided by the Trump administration. So, there is a short-term calmness on the trade war front right now (read: 5 Top Smart-Beta ETF Charts Amid Trade Tensions).
More Chinese Stimulus
The Chinese government has been rolling out stimulus measures to ward off the adverse impact of the trade war. There is news that there will be more stimulus in China, which charged up the entire market as well as tech stocks.
Among regular ETFs, products likeTechnology Select Sector SPDR Fund XLK, First Trust Nasdaq Semiconductor ETF FTXL, Vanguard Information Technology ETF VGT, Fidelity MSCI Information Technology Index ETF FTEC and iShares U.S. Technology ETF IYW have added in the range of 5.15% to 5.45% in the past five days (as of Jun 11, 2019) (see all technology ETFs here).
The Technology Select Sector SPDR ETF (XLK) was trading at $76.47 per share on Wednesday afternoon, down $0.50 (-0.65%). Year-to-date, XLK has gained 19.95%, versus a 8.43% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Yahoo! Finance.