Among high-volume sectors, the technology market, overall, has been unusually choppy. The benchmark Technology Select Sector SPRD Fund (NYSEARCA:XLK) was down more than 3% at one point. As we entered the spring season, it wasn’t clear which direction tech stocks would take. At this time last year, the XLK was up over 15%.
But over the past two weeks, an increasing number of investors considered tech stocks to buy. The XLK experienced pronounced bullishness, driving up its year-to-date haul to slightly over 9%. Moreover, individual names, such as sector mainstays Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL), racked up the basis points.
Let’s also not forget Apple Inc. (NASDAQ:AAPL). It’s on a quest to become the first company to achieve a $1 trillion market capitalization. To be completely transparent, I’m not buying into Apple’s extreme momentum play. Ultimately, I find value in underappreciated opportunities. Nevertheless, the mainstream enthusiasm has been very real — and that has helped other tech stocks.
With all that said, we’ve seen rallies this year petering out. Can investors still trust putting the technology sector in their stocks-to-buy list? Compelling evidence suggests that this is, indeed, the case.
For Tech Stocks, All Roads Lead to Trump
In a convoluted and somewhat ironic way, President Trump made tech stocks great again.
I can’t say this was by design. The current administration is very much Forrest Gump-esque. Our foreign policy is a complete crapshoot, yet, somehow, we end up alright.
A few months ago, Trump imposed tariffs worth billions on Chinese goods, a major impetus being intellectual-property theft. Caught up in the firing lane was Chinese smartphone maker ZTE Corp. Our government claimed that ZTE essentially didn’t take seriously enough its prior Iran sanctions violations.
Initially, the U.S. banned all domestic companies from providing parts to ZTE. That ordinarily would be a boost to tech stocks since ZTE is a major international competitor. However, the Chinese company does substantial business with American technology firms. That hurt names like Acacia Communications, Inc. (NASDAQ:ACIA), which tanked as a result of the ban.
Trump had to gently back away from his “shoot first, ask questions later” approach. In doing so, Acacia vigorously demonstrated viability. Furthermore, Trump’s softening stance towards ZTE boosted many other tech stocks.
In a global economy, cooperation is key. Sensing some thawing in relations, Chinese regulators resumed reviewing Qualcomm, Inc.’s (NASDAQ:QCOM) bid for NXP Semiconductors NV (NASDAQ:NXPI), according to a recent Bloomberg report.
Of course, this doesn’t necessarily mean that you should immediately put QCOM or NXPI on your stocks-to-buy list. Mergers are hideously unpredictable beasts on the best of days. A merger involving a Chinese company is exponentially more problematic.
But here’s what I love about recent developments: they provide substantive hope that Trump is finally learning the nuances of geopolitics and an internationally connected economy. Going off on anachronistic rants via Twitter Inc (NYSE:TWTR) isn’t necessarily helpful. For tech stocks, it can be downright catastrophic.
Did Trump Make Most Tech Companies Stocks to Buy?
While marveling at President Trump’s uncanny ability to negotiate his way out of anything, we all must concede one possibility: Maybe this administrations supposed blunders are deliberate and ingenious strategies?
Many, if not most, investors haven’t regarded multinational tech firms as stocks to buy because Trump is so combative. He literally speaks what’s on his mind, which is great if you’re generating traffic for your YouTube video, but when you’re the leader of the free world? Not so much.
Thus, I’m inclined to believe that Trump doesn’t know anything about foreign policy. However, his gruff, Teddy-Roosevelt-on-steroids routine may be part of his shock-and-awe campaign. He’s proven that he’ll go on a war of words, even if that means World War III.
In other words, foreign leaders fear Trump. And that fear provides an incredible bargaining chip. Therefore, he’s able to have his cake and eat it, too. He shows other leaders who’s boss and, later, gets exactly what he wants.
For tech stocks, this iron-fisted method translates into favorable situations through association. Trump may be a bully, but he’s our bully. When you have a human bulldozer with an itchy trigger-finger backing you up, opportunities magically open.
Or Trump could be George W. Bush’s third presidential term. I can’t say for certain. What I do know is that whether Trump is the world’s luckiest village idiot, or a cold-blooded political assassin, the prognosis appears very good for tech stocks.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.