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3 Solid Reasons to Bet on Big Tech ETFs and Stocks

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The year 2021 has brought with it a rising rate trend in the United States (thanks to stimulus and vaccine distribution) and thus growth stocks have started to waver. Since tech stocks are high-growth in nature, the tech-heavy Nasdaq has suffered occasionally this year.

This is because the tech bunch of growth stocks that won during the pandemic-ridden 2020 on low rates have got a bashing on rising rates occasionally. The S&P 500 is up 16.3% this year versus 13.9% gains in the Nasdaq Composite.

Should You Buy Tech ETFs on Sale, Slowdown and Inflation?

CNBC’s Jim Cramer said that big tech stocks are lucrative bets amid rising inflation and chances of higher interest rates. “Hyper-growth tech stocks are actually what works best during a slowdown,” the “Mad Money” host said, as quoted on the CNBC article.

The annual inflation rate in the United States accelerated to 5.4% year over year in June 2021 from 5% in May, hitting a fresh high since August 2008, and well above forecasts of 4.9%.  The latest uptick in inflation was the largest 12-month increase.

Inflation has been on an uphill ride this year thanks to the low-base effects from 2020 and because economic recovery picked up, business restrictions were relaxed and demand jumped amid widespread vaccination and fiscal stimulus.

Big Tech Resistant to Inflation?

Cramer explained that bigtech names like Google-parent Alphabet (GOOGL - Free Report)  and Microsoft’s (MSFT - Free Report) business model is not that responsive to changes in inflation, including the rise in prices for raw materials, chemicals and commodities like gas, plastics, packaging and so on. Higher transportation charges are also less likely to bother the operation of big tech companies.

Most recently, Microsoft launched Windows 365 as a simpler option for cloud-based PCs and is expected to gain from this operational move. Meanwhile, Apple (AAPL) is reportedly asking suppliers to boost the production of its next-generation iPhones by 20%, according to a Bloomberg News report published late Tuesday,  as quoted on CNBC. 5G could be a boom time for Apple as many will upgrade their phones while carriers expand their coverage of the new faster networks (read: Apple ETFs at Record High: Further Potential on iPhone Optimism).

Dovish Fed Minutes

The latest Fed minutes came in dovish, indicating that officials may not be ready to go for tightening the policy as yet. According to the minutes of the U.S. central bank's June policy meeting, the Fed officials felt that considerable improvement on economic recovery "was generally seen as not having yet been met," though they are watchful of the inflation concerns. The minutes led the growth-oriented Nasdaq to a new high as rates are likely to remain lower for longer (read: ETFs to Play on Dovish Fed Minutes).

Fears of Delta Variant of COVID-19

The highly infectious strain of the Delta variant of COVID-19 has been found in more than 100 countries. France, the Netherlands and Spain announced new restrictions in order to curb rising cases of the highly contagious delta variant.

Fears of the delta variant of COVID-19 may cause higher demand for the tech stocks as these are the winning ones amid the stay-at-home trend. Plus, the sector has solid long-term potential (read: 3 Sector ETFs That Have More Room for Growth in Q3).

“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and growing video streaming are sure to stay here for long. The growing adoption of cloud computing, and the ongoing infusion of AI, machine learning and IoT are the other winning areas.

So, don’t shy away from the tech sector altogether. Rather bet on the ones that are cash rich and scrape through the volatility. Against this backdrop, we highlight a few top-ranked tech ETFs that could be bought right now (read: 3 Sector ETFs That Have More Room for Growth in Q3).

Technology Select Sector SPDR ETF (XLK - Free Report) – Zacks Rank #2 (Buy)

iShares Expanded Tech-Software Sector ETF (IGV - Free Report) – Zacks Rank #3 (Hold)

Vanguard Information Technology ETF (VGT - Free Report) – Zacks Rank #2

Fidelity MSCI Information Technology Index ETF (FTEC - Free Report) – Zacks Rank #3

iShares U.S. Technology ETF (IYW - Free Report) – Zacks Rank #2

Communication Services Select Sector SPDR Fund (XLC - Free Report) – Zacks Rank #2

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