The technology sector was battling a number of headwinds arising from a slew of negative news from some of the key companies in the space. But the tide seems to be turning around following strong earnings, leading to an end to weeks of decline for the sector’s stocks.
Total earnings from 81.5% of the sector’s market cap in the S&P 500 index are up 29.6% on 12.1% higher revenues, with a record 92.1% companies beating earnings estimates. Notably, the S&P 500 Information Technology index gained 3.3% in the past month.
Power-Packed Earnings
Earnings from some of the biggest names in the space have been encouraging. The market darlings FAAMNG group, namely Facebook Inc (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOGL), which slipped into deep correction territory in late March, strongly restored positive sentiments with better-than-expected results and optimism for future growth.
Facebook shrugged off worries over the data-privacy scandal involving Cambridge Analytica that broke in mid-March, while Apple eased weak iPhone demand and greeted investors with a big capital return program. The fast-growing cloud computing business powered both Amazon and Microsoft’s growth story. Notably, Microsoft seems on track to record its strongest annual revenue growth for more than a decade. Netflix came up with blockbuster results while Alphabet’s numbers were also inspiring.
Apart from these, semiconductor firms like Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC) and payment companies including Visa Inc (NYSE:V) and PayPal Holdings Inc (NASDAQ:PYPL) also fueled the rally and instilled confidence in the sector.
Other Factors
The twin tailwinds of Trump’s tax reform and a rising interest rate scenario are fueling growth. This is because tech titans hoard huge cash overseas and are poised to benefit the most from reduced tax rates. These companies are sitting on a huge cash pile and are in a position to increase payouts to their shareholders. Additionally, the sector’s cyclical nature will allow it to perform well in a maturing economic cycle.
Further, the emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, and artificial intelligence as well as strong corporate earnings are acting as the key catalysts.
Given the recovering trend, most of the tech ETFs are on the rise following the power-packed earnings. Below, we have presented some funds that are leading from a one-month look and will continue their outperformance given their solid Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
Tech ETFs to Lead Again on Power-Packed Earnings: First Trust Cloud Computing ETF (SKYY) – Up 4.7%
The First Trust Cloud Computing ETF (NASDAQ:SKYY) provides exposure to 30 cloud computing securities by tracking the ISE Cloud Computing Index.
It has amassed $1.4 billion in its asset base and sees a good volume of about 267,000 shares a day. It charges 60 bps in annual fees and a Zacks ETF Rank #3.
Tech ETFs to Lead Again on Power-Packed Earnings: First Trust Dow Jones Internet Index Fund (FDN) – Up 4.5%
The First Trust Dow Jones Internet Index Fund (NYSEARCA:FDN) targets the Internet corner of the broad technology space with AUM of $7.2 billion and average daily volume of around 549,000 shares.
The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.53%. The fund has a Zacks ETF Rank #2.
Tech ETFs to Lead Again on Power-Packed Earnings: PowerShares Dynamic Software Portfolio (PSJ) – Up 3%
With AUM of $156.7 million, the PowerShares Dynamic Software Portfolio (NYSEARCA:PSJ) targets software corner of the broad technology space and follows the Dynamic Software Intellidex Index.
It holds 29 securities in its basket and trades in average daily volume of 12,000 shares. Expense ratio comes in at 0.63%. The fund has a Zacks ETF Rank #2.
Tech ETFs to Lead Again on Power-Packed Earnings: SPDR S&P Technology Hardware ETF (XTH) – Up 3%
The SPDR S&P Technology Hardware ETF (NYSEARCA:XTH) targets the hardware segment of the technology market by tracking the S&P Technology Hardware Select Industry Index.
It holds 42 stocks in its basket and charges 35 bps in annual fees. The ETF has accumulated $3.5 million in its asset base and trades in paltry volume of under 1,000 shares. It has a Zacks ETF Rank #1.
Tech ETFs to Lead Again on Power-Packed Earnings: iShares North American Tech-Software ETF (IGV) – Up 2.7%
The iShares North American Tech-Software ETF (BATS:IGV) provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index.
Holding a basket of 59 securities, the fund charges 48 bps in annual fees and has AUM of $1.5 billion. Volume is good as it exchanges nearly 185,000 shares a day. IGV has a Zacks ETF Rank #2.
Tech ETFs to Lead Again on Power-Packed Earnings: iShares North American Tech ETF (IGM) – Up 2.6%
The iShares North American Tech ETF (NYSEARCA:IGM) tracks the S&P North American Technology Sector Index, giving investors exposure to 290 electronics, computer software and hardware, and informational technology companies.
The fund has AUM of $1.4 billion and charges 48 bps in annual fees. It trades in a moderate volume of nearly 49,000 shares in hand a day and has a Zacks ETF Rank #2.
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