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Will Technology Sector Become Market Winner Again in 2021?

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Wall Street performed impressively in the last two years defying the trade-related tussle between the United States and China in 2019 and the global outbreak of an unprecedented pandemic caused by the novel coronavirus in 2020.

The early trend in 2021 is indicating the continuation of this trend. Notably, the primary factor that has driven the northward journey of Wall Street in the last two years despite severe headwinds, was the astonishing performance of the technology sector.

However, several economists and financial experts have expressed doubt that the technology sector may lag the other cyclical sectors like consumer discretionary, financials, industrials, materials and energy as the U.S. and global economy reopens.

Approval of COVID-19 vaccines in the United States and various other countries, expectations of higher fiscal stimulus in the second round by the U.S. government, continuation of a low-interest rate regime by almost all major central banks, will boost cyclical stocks rather than growth-oriented technology stocks.

Under this scenario let's discuss can technology sector maintain its supremacy in Wall Street.

The New Safe Haven

Notably, in 2019, when the best performance of Wall Street was recorded in six years, technology stocks drove the overall market. In 2020, it was the same technology sector that had helped Wall Street to exit a coronavirus-induced short bear market to form a new bull market. This overwhelming performance prompted several economists and financial experts to comment that the technology sector is the new safe haven for investors.

Technology is generally recognized as a growth-oriented sector. In this regard, the sector should have borne the maximum brunt of the global economic devastation caused by an unprecedented health hazard — the novel coronavirus. In reality, technology was the predominant force behind Wall Street's unprecedented recovery after falling to the coronavirus-induced bear market trough on Mar 23.

Technology is the Best Bet in the Long Term

The logic that the technology sector will underperform other cyclical sectors may be true for a short period of time but in the long term, technology stocks will remain the best bets.  We must not forget that the growing demand for hi-tech superior products has been a catalyst for the sector in an otherwise tough environment. A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, have given a boost the overall space.

The thrust for digitization is likely to come from two sides. Individuals, who enjoyed immense benefits of digital platforms during the coronavirus-induced lockdowns last year, are less likely to go back to their old habits. The new way of connecting has opened up a new world for them. Also, business entities will be more interested in cloud computing, automation and AI to establish smooth supply chain systems.  

Vast Under-Penetration of Digitization in Emerging Markets

Leading emerging markets of Asia, Latin America, Africa and some European countries are still way behind in using digital technology compared with the developed world. While mobile phone penetration is nearly 90% in these countries, a large number of people are still using phones with old features, since voice communication and not data served most of their needs. Even those, who are using smartphones, rarely utilize online digital features.   

However, the outbreak of coronavirus quickly changed the lifestyle and lookout of these people. People were not entirely used to digital platforms for doing office work (work from home), ordering foods and other daily needs or transferring money and making payments. Moreover, online schooling, video conferencing and virtual networking have now become essential.

The countries which are more digitized have been able to minimize their losses during the pandemic. These are major lessons to the other countries. Even those who are less inclined toward digital technology and online platforms, either because they have to learn using smartphones or tablets or due to fear of data theft, are now feeling the massive advantage of online platforms.

Stocks in Focus

The technology sector is indispensable and the reopening of the U.S. and global economies will only act as positive catalyst for this sector. Major technology stocks that are going to perform well in near future are Apple Inc. (AAPL - Free Report) , Facebook Inc. (FB - Free Report) , Alphabet Inc. (GOOGL - Free Report) , Micron Technology Inc. (MU - Free Report) , Broadcom Inc. (AVGO - Free Report) , Qualcomm Inc. (QCOM - Free Report) , Intel Corp. (INTC - Free Report) and Dell Technologies Inc. (DELL - Free Report) .

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