Will the Technology Sector Continue to Outperform Others in 2H17?
The technology sector in 1H17
The technology sector has remained the top performer among the various sectors of the S&P 500 Index (SPY) (QQQ) so far this year. The Technology Select Sector SPDR ETF (XLK), which tracks the performance of the technology sector, rose nearly 19% on a year-to-date basis, as of August 25, 2017, and it rose nearly 12.1% in the first half of 2017.
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Apple (AAPL), Microsoft (MSFT), and Facebook (FB) returned nearly 24%, 10%, and 29.2%, respectively, in the first half of 2017. The strong performance of technology stocks is mainly driven by their strong revenue and earnings growth, strong R&D (research and development), and great business model.
In the above part, we discussed that Goldman Sachs’ (GS) report on the higher valuation of technology stocks dragged down the performance of the technology sector in June. However, it remained the best-performing sector so far this year. Its strong business fundamentals are the main factor driving the sector’s performance.
According to Mike Wilson, the chief equity strategist at Morgan Stanley (MS), the technology sector will benefit the most if the tax reform takes place. He said in an interview with CNBC in May 2017, “The prospect of tax reform should disproportionately benefit energy, tech, healthcare, telecom and small cap stocks.” If the tax reform takes place, then we might see further upside in these technology stocks.
In the next part of this series, we’ll analyze the performance of the utility sector so far this year.