The tech-heavy Nasdaq Composite index witnessed its worst trading session since March on Sep 28 as it tanked 2.8%. The big players in the space like Facebook
FB
, Microsoft
MSFT
and Alphabet
GOOGL
declined more than 3%. Amazon
AMZN
also lost more than 2% on the same day. The other two broad market indices, the S&P 500 and the Dow Jones Industrial Average, also lost 2.0% and 1.6%, respectively, in yesterday’s trading session.
The reason for this slowdown in the tech market can essentially be the benchmark 10-year Treasury yields rising to the highest levels since June. Notably, the 10-year Treasury yields rose as high as 1.567% on Sep 28. It is a known 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).
In the FOMC meeting that concluded on Sep 22, the Federal Reserve Chair Jerome Powell maintained the interest rates near zero at 0-0.25% but hinted on tapering the bond purchases in the near term, followed by interest rate hikes as early as next year. The central bank is expected to begin scaling back the monthly bond purchases as soon as November and complete the process by mid-2022.
Notably, Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, has said “The market’s been steadily coming around to the reality that yields were awfully low relative to the fundamentals. Now the Fed is shifting, and everybody’s shifting their positions, all at once, as we tend to do,” as stated in a CNBC article.
However, technology plays an instrumental role amid the COVID-19 uncertainty in aiding people to maintain safe-distancing norms.
As the U.S. economy was reopening, an increasing number of American shoppers were seen to be visiting stores for some retail therapy. However, with the surging Delta variant cases, shoppers are expected to resort to online shopping again.
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. The pandemic is also a boon for the e-commerce industry as people continue staying indoors and shopping online for all essentials, especially food items.
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. 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. Moreover, the pandemic led to an increase in doctors preferring online consultations. 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 kind of computer peripherals as well. Going by IDC’s
Worldwide Quarterly Personal Computing Device Tracker
, the global shipment of PCs that include laptops and tablets, desktops and notebooks, reached 83.6 million units in the second quarter, rising 13.2% on a year-over-year basis.
Technology ETFs to Keep a Track
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 an AUM of $50.88 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 (read:
Technology and Volatility: 2 ETFs to Watch for Outsized Volume
).
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 $44.48 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 $8.97 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:
Apple Unveils iPhone 13 Models: ETFs to Buy
).
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 $3.84 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.
Zacks’ Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create “the world’s first trillionaires.” Zacks’ urgent special report reveals 3 AI picks investors need to know about today.
See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report