Since the summer's bull market correction, Tech stocks have been on a tear. And frankly, Tech currently has a lot going for it. Most Tech firms are beating expectations this quarter. Primarily, here's why:
Senate Passes Seven-Year Internet Tax Moratorium
Grant Gross, Network World
Beyond these factors, it's worth noting that Tech exemplifies how productivity gains and globalization help keep inflation benign in today's economy. There's no doubt technology is a leader when it comes to globalization of design, manufacturing and distribution of products. Thus, the benefits of technology products sales propagate throughout the manufacturing and end user spectrum. Advancing technology is also a key to keeping productivity high in other industries like Industrials and Financials—which in turn helps restrain aggregate prices.
Those fearing another Tech bubble are probably off the mark. Today's Tech environment is a different ballgame from six or seven years ago. The Tech shakeout burned off most speculative, non-profitable companies. True, there are still high growth areas with semi-stratospheric valuations, but gone are the days of huge market capitalizations based on purely speculative ideas.
The corporate culture has also changed. Management pays more attention to operational costs and balance sheet strength, with a healthy dose of skepticism about new product viability—indicative of a maturing industry led by results-minded, feet-on-the-ground executives. Because it's a more mature, conservative Tech landscape today, it's unlikely we'll see a truly giant run of Tech out-performance like we saw in the late 90s.
Yes, a lot folks are touting Tech's recent run, and the fundamentals do look pretty good. But this wouldn't be the first time a preponderance of analysts got high on Tech during this bull market—only to see stock prices sag. (And you can count us among those who made that mistake in years past.)
So, we'd advise caution for now—there's no need to take a big bet either way at the moment on Tech within a well diversified portfolio. There are probably still better opportunities elsewhere. There are powerful cases to be made in favor of sectors like Energy and Materials—both are likely to see even bigger benefits from high demand (due to the strong global economy) and constrained supply.
Maybe this time is different, maybe not. This could very well be a mere post-correction countertrend. Either way, Tech's strong earnings performance this year is great evidence of a strong economy.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.