For 11 weeks straight tech focused mutual and exchange traded funds have been pulling in investor money. Since the start of 2017 the funds have gathered $8.7 billion in new investment according to BofA Merrill Lynch and EPFR Global. The tech funds are on their way to the fastest pace of growth in at least 15 years. Chris Dieterich writes at the Wall Street Journal:
It’s not hard to see why big-cap tech names have been en fuego. These companies have well-known brands and dominant businesses. At the same time, middling economic growth in the U.S. has made fast profit and earnings growth harder to find elsewhere in the U.S. stock market. Meantime, low government and corporate bond yields have left investors with few obvious choices for where to plunk new money.
One potential issue is that, as tech stocks become increasingly popular, they may also become the first ones that investors sell during bouts of broader market turmoil. Take Apple this week as a case study: As the U.S. stock market suffered its worst declines in eight months Wednesday, shares of Apple, absent corporate news, plunged 3.4% — the worst day since the company missed on an earnings report in April 2016.
Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, notes Friday that the longer it takes for economic growth to accelerate and bond yields to rise, there is “greater risk of tech mania.”
Read more here.
Below you can see that in the first 97 days of 2017 the performance of the S&P 500 Info Tech Sector index has outperformed every year since 1999.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Grantham’s GMO says U.S. Stock Bubble is Busting - January 18, 2019
- Is a Shaky Outlook for Aluminum a Shaky Outlook for the Global Economy? - January 17, 2019
- Is Indexing Hurting Competition? - January 16, 2019