Why the Technology Sector Is Jittery ahead of Tax Reform
The technology sector has remained the top-performing sector of the S&P 500 Index (SPX-INDEX) (SPY) so far this year. The Technology Select Sector SPDR ETF (XLK), which tracks the performance of the US technology sector, has risen nearly 30.7% on a year-to-date basis as of December 4, 2017.
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In spite of a strong performance, the sector is showing some nervousness ahead of tax reforms. On Monday, December 4, 2017, the ETF fell nearly 1.6%. Major technology stocks Apple (AAPL), Microsoft (MSFT), and Facebook (FB) fell nearly 0.73%, 3.8%, and 2.1%, respectively, on that day.
Sector rotation could be one of the important reasons behind the performance of the technology sector. Investors could be increasing their position in the financial sector due to the expectation of a possible rate hike at the December 2017 meeting. It also seems like investors are taking out some profits from high growth sectors like technology and semiconductors.
Spending in R&D
Technology companies generally spend more on research and development. They also claim tax credits for their spending in research and development. However, by lowering the corporate tax rate, it might be harder for them to get this benefit. All these factors are dragging investors’ sentiment on the technology sector.
In the next part of this series, we’ll analyze the performance of the major sectors of the S&P 500 Index on December 4, 2017.