The technology sector (XLK) was one of the outperforming sectors as it managed to gain 4.6% from January 2015 to December 23, 2015. The following graph presents the stock price movement of XLK and SPY since January 2015.
The technology sector, represented by the Technology Select Sector SPDR ETF (XLK), had bright corporate earnings results in the third quarter of 2015 where many companies of other sectors missed their earnings estimates. This was the period when the Chinese stock market crashed, and the world started experiencing a slowdown in its economic activities.
The technology sector is made of application software, communication equipment, data processing
and outsourcing services, internet services, semiconductor industry, and technology hardware. The PE (price-to-earnings ratio) of this sector was 19 as of November 30, 2015. This is neither high nor low when compared to the PE of other component sectors of the SPY ETF.
There were a few technology stocks with an RSI (Relative Strength Index) of around 30 or even less, implying that these stocks were either undervalued or oversold. Apple (AAPL) happened to be one such stock that fell due to concerns regarding the sales of its new iPhone 6.
On the other hand, Altera (ALTR), belonging to the semiconductor industry, had an RSI equal to 78. An RSI above 70 suggests that the asset is overbought or overvalued.
Generally, technology stocks follow the market movement but are impacted hugely by corporate earnings, corporate actions, and inventions or newer technologies in the sector.
The top performing stocks to date–December 23—are Netflix (NFLX), Amazon.com (AMZN), First Solar (FSLR), Total Systems Services (TSS), Verisign (VRSN), and NVIDIA (NVDA). The trailing-one-year returns of these stocks equaled 145.9%, 116.7%, 50.2%, 48.3%, 50.2%, and 60.1%, respectively, as of December 23.
Outlook for 2016
Companies in this sector show potential earnings growth. Given a high degree of operational leverage, low financial leverage, investment in newer technologies, improved productivity, as well as corporate actions like mergers and acquisitions, not to mention share buybacks, these technology companies seem to be better equipped to face the coming economic times.