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US Strategy Comment: Still Bullish on Tech, But Selectivity Is Key

 

Investors Should Pick Their Spots Within the Technology Sector

With Technology stocks leading US equity market performance this year by a wide margin, investors have started to question if and how long this outperformance streak can last. From our perspective, we remain Overweight Technology and firmly believe the sector will continue to outperform over the next 12-18 months given the positive fundamental backdrop underlying the group. With that said, the extreme price run-up in Tech, combined with elevated valuations and a hefty 27% weighting in the S&P 500 index, makes it difficult for us to recommend an aggressive overweight allocation toward the group. The key for Tech, in our view, is stock selection as current sector dynamics suggest to us that an active investment strategy should be utilized when adding exposure to the group. As such, we would advise investors to pick their spots within Technology, as there are plenty of opportunities that exist in the sector that some investors may be neglecting.

Main Points:

  • Fundamental Backdrop for Technology Sector Is Largely Positive

  • However, Relative Price Trends and Elevated Valuations Make It Difficult to Have an Aggressive Overweight Sector Allocation

  • An Active Approach Should Be Used Within Technology

  • Plenty of Opportunities Exist Outside of ‘Big Tech’

  • Group and Stock Focus: Value, Growth, and GARP

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Brian Belski Chief Investment Strategist



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