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Tech stocks have dominated the market in recent years, with Apple and Microsoft outperforming the index and S&P 500. Many online investment ideas promote tech stocks as the best sector bet, but there are reasons to be cautious. Historical data shows that when sectors become too dominant, they often experience periods of underperformance. The tech sector is approaching these levels now.
Total S&P 500 earnings are expected to be up 2.5% from the same period last year on 3.5% higher revenues with technology sector being the key driver.
Tech-focused Technology Select Sector SPDR® Fund ETF has underperformed the S&P 500 by just under 200 basis points since the end of 2023. The top 10 holdings of the XLK ETF are dominated by Microsoft and Apple, accounting for about a third of the fund. The recent underperformance of XLK may indicate a reset in momentum, setting up for a new rally in the coming months.
Always start out with a no-nonsense foundational position in an index fund. Slow and steady dividend payments can often bear more fruit than picking the next red-hot growth stock.
Amrita Roy is neutral on the S&P 500, citing no material downward revision to earnings and the expectation of higher interest rates due to reaccelerating inflation. She is bullish on India and emerging markets in general, as global capital inflows are shifting towards these regions.
Launched on 12/16/1998, the Technology Select Sector SPDR ETF (XLK) is a passively managed exchange traded fund designed to provide a broad exposure to the Technology - Broad segment of the equity market.
Capital markets appear content with playing the rate cut waiting game as the S&P 500 continues to rise to new highs. Meanwhile, renewed volatility could make investors reconsider adding an equal weight strategy to their portfolios.
Microsoft's stock reached an unprecedented high, driven by the announcement of its new artificial intelligence assistant, Microsoft Copilot for Security.
Fidelity MSCI Information Technology Index ETF is a sizable ETF that offers exposure to the technology sector, but its performance does not compare favorably to larger peers like the XLK. FTEC is well-diversified and has a lower expense ratio compared to the XLK, but it has underperformed on mid-to-long-term horizons. The valuation of FTEC is higher than the XLK, and potential risks such as higher interest rates could impact its performance. Overall, FTEC is not a compelling investment compared to the XLK.
Cash cow investing is a strategy that has gained popularity among investors seeking stable and consistent returns.