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Neglected tech stocks make their mark

MtR by MtR
June 8, 2021
in Stocks
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Neglected tech stocks make their mark


“The [US market] have ignored a number of strong, important economic data prints of late that would usually have pushed yields higher, implying that the current rally has become fatigued,” Mr Gerrish said.

“If bond yields do keep drifting lower, we feel the aggressive rotation from growth to value stocks will be challenged and the tech space could play some aggressive performance catch up.”

The S&P/ASX 200 broke the 7300-point mark on Monday, and Mr Gerrish believes the 7400 level will be tested in coming weeks.

Indications of a comeback

The big four banks, which make up a substantial part of the index, already have enjoyed an average gain of more than 28 per cent this year, and that’s before dividends. Meanwhile, the S&P/ASX 200 Information Technology Index is down 9.7 per cent year to date.

The cyclical nature of bank earnings means they are often grouped as value stocks. This run, coinciding with a rout in tech, was not sustainable in the short term, Mr Gerrish said.

“The last six months has seen the local IT stocks correct fairly hard while the banks and resources have maintained their bullish advance,” he said. “This performance elastic band has now stretched far enough and it’s time for some significant catch-up.”

Indications of a comeback were seen as the S&P/ASX All Technology Index climbed 1.1 per cent on Tuesday, against a flat performance by the broader market.

On Wall Street, the Nasdaq was the only major index to rise, advancing 0.5 per cent, while the Dow dropped 0.4 per cent and the S&P 500 declined 0.1 per cent.

One way to play this short-term rebound would be through an ASX 200 tech exchange traded fund, Mr Gerrish said, given it alleviated individual stock risk in what had been a volatile sector this year.

He pointed to the fact that 50 per cent of the sector had fallen more than 10 per cent in 2021, with the worst three tech companies averaging a decline of 45 per cent.

“Clearly, with so many IT stocks struggling in 2021, there’s plenty of room for at least a few strong bounces in a market where investors are finding it increasingly difficult to identify value.”



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