The technology sector was a great beneficiary of the COVID-led stay-at-home trend.
Technology Select Sector SPDR Fund ( XLK Quick Quote XLK - Free Report) has advanced 88.3% past year against the 50% return offered by the S&P 500. But the tech rally had slackened lately due to rising rate worries emanating from the gradual reopening of the economy. In fact, the ETF XLK has advanced just 4.2% in the past month in comparison to the S&P 500’s 3.3% rally.
But tech stocks should sizzle again in the coming days. ETFs like
Invesco Dynamic Semiconductors ETF ( PSI Quick Quote PSI - Free Report) , First Trust NASDAQ-100 Technology Sector Index Fund ( QTEC Quick Quote QTEC - Free Report) and ProShares S&P Technology Dividend Aristocrats ETF ( TDV Quick Quote TDV - Free Report) could be the future winners. Let’s delve a little deeper. Fears of Omicron Variant of COVID-19
The highly infectious strain of the Omicron variant of COVID-19 has been found in several countries. Europe has already enacted lockdown to curb rising cases. Lockdowns are likely in other regions as well. Fears of the Omicron variant of COVID-19 may lead to 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. “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.
Will Fed Raise Rates Later Than Expected?
Earlier this month, the Fed's policy-setting committee announced that it would start scaling back its purchases of agency mortgage-backed securities and U.S. Treasuries, which it had been absorbing at a clip of about $120 billion a month since the depths of the pandemic.
Many expected a hike in rates in mid-2022. However, those chances have been quelled a bit now. Per CME group data, chances of a 50-bp rate hike in June 2022 is 44.1% at the time of writing, down from a 46.7% probability recorded a week ago. This means that the rates are likely to remain low in the coming days due to the safe-haven rally and a dovish Fed, which in turn should work well for the high-growth tech stocks.
Big Tech Resistant to Inflation?
Cramer explained that big-tech names like Google-parent Alphabet (GOOGL) and Microsoft’s (MSFT) business model are not that responsive to the changes in inflation, including the rise in prices for raw materials, chemicals and commodities like gas, plastics, packaging and so on. Higher transportation charges due to supply chain issues are also less likely to bother the operations of big-tech companies.
Wedbush Securities analyst Dan Ives believes that Apple (AAPL) and Microsoft (MSFT) are great picks now,
as quoted on the street.com. 5G could be a boom time for Apple as many will upgrade their phones while carriers expand their coverage of the new faster networks. Microsoft will gain out of this Omicron scenario with the help of its cloud business.
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.
ETFs to Buy on the Recent Selloff
We highlight below a few tech ETFs that sport a have a top rank and relatively lower P/E ratios in the space.
Invesco Dynamic Semiconductors ETF ( PSI Quick Quote PSI - Free Report) – Zacks Rank #1 (Strong Buy) – 28.07X Technology Select Sector SPDR Fund ( XLK Quick Quote XLK - Free Report) – Zacks Rank #1 – 27.53X First Trust NASDAQ-100 Technology Sector Index Fund ( QTEC Quick Quote QTEC - Free Report) – Zacks Rank #1 – 29.22X ProShares S&P Technology Dividend Aristocrats ETF ( TDV Quick Quote TDV - Free Report) – Zacks Rank #1 – 30.98X