Investors See Tech Driven Trump Rally Extending

Investors See Tech Driven Trump Rally Extending

Investors See Tech Driven Trump Rally Extending

$XLK, $AAPL, $FB

Technology companies have been a driving force behind the US stock market’s Trump Rally to record highs, and despite mounting evidence of stretched valuations the sector is a paramount pick for investors expecting a wave of capital spending by US corporations.

Corporate tax cuts and reduced regulations planned by President Donald Trump will give companies reason to spend more on Cloud Computing, factory automation and smart connectivity that will directly benefit Silicon Valley, many believe.

The tax cuts are going to promote business investment across all industries, and the business investment is largely going to be in technology.

Strong performances from big names including Apple Inc (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) have helped make technology the strongest S&P 500 sector YTD, rising 10% compared to the broader index’s 6% rise.

In the past month, investors have poured $325-M into to the US-listed Technology Select Sector SPDR Fund (NYSEArca:XLK), according to www.ETF.com, which tracks fund flows.

The proliferation of smart, connected devices in homes, factories and stores is leading to the collection unprecedented amounts of data and creating demand for more computing power to analyze it.

Spending on Cloud Computing will grow by 21.5% a year through Y 2020, almost 7X as fast as overall IT spending, according to a recent estimate by market research firm IDC.

Improved employment and consumer confidence have also been behind investors’ optimism about tech, helping offset concerns about the high valuations.

After an 8-yr US stock market rally, nearly all sectors are trading at earnings multiples above their long-term average, but none more so than technology, according to Thomson Reuters Datastream.

The tech sector’s strong performance has left it trading at 17.9X expected earnings, compared to its 10-year average of 14.5X expected earnings.

The S&P tech sector’s P/E (price-to-earnings)  multiple has been above its own long-term average for about a year, and during that time the sector has risen about 28%.

Tech Bulls believe earnings momentum is growing for the sector.

S&P 500 tech earnings expanded 12.3% in Q-4, more than any other sector, according to Thomson Reuters data.

Analysts on average expect 13.6% growth for the March Quarter.

I cannot remember a time when we have seen this much excitement. Semiconductors are not as cyclical as they used to be, where Q’s were driven by PC demand. Now it is automotive, it’s data center, industrial automation.

Symbol Last Trade Date Change Open High Low Volume
NYSEArca:XLK 52.86  3 March 2017 0.12 52.7 52.86 52.59 7,856,900
HeffX-LTN Analysis for XLK: Overall Short Intermediate Long
Very Bullish (0.57) Very Bullish (0.50) Very Bullish (0.62) Very Bullish (0.58)

Have a terrific weekend

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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