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2 Tech ETF Areas Likely to Stay Strong Despite Rising Rate Worries
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Wall Street has been on choppy ride since the start of 2022 due to rising rate worries. At the end of Jan 26, 2022, the yield on the benchmark 10-year Treasury note jumped 7 basis points to 1.85%. The yield on the 30-year Treasury bond increased 4 basis points to 2.16%. The yield on the benchmark 2-year Treasury note surged 11 bps to 1.13%. Rates have been rising in the United States on the Fed’s rate hike bets as soon as in March.
Higher inflationary expectations emanating from supply chin disruptions as well as higher crude prices should make Fed members comfortable with several rate hikes in the coming days. As of Jan 26, 2022, CME’s FedWatch Tool said that there is 32.6% chance of 2022 closing out with 125-150 bps of rates while a 28.1% probability is there for the year to end at 100-125 bps of rates.
The Nasdaq, heavy on technology and growth stocks, has been downbeat this year. The index is now off more than 10% from its November record, ensuring the fact that it has entered the correction territory. The Nasdaq Composite has lost 13% this year as investors continue to walk out of the high-growth tech shares as interest rates surge to start the new year. The index also plunged 7.6% last week, marking its worst week since March 2020. Heavy reliance on the tech sector led to this lackluster performance.
Since the growth sector relies on easy borrowing for superior growth and its value depends heavily on future earnings, a rise in long-term yields cuts the present value of companies’ future earnings. Apart from the rate issues, the economic reopening amid vaccination and easing Omicron concerns have been pushing investors away from the stay-at-home tech stocks.
Still, there are two tech areas that should stay afloat amid the tech carnage. We highlight those two areas.
ETF Areas in Focus
Semiconductor
Per the Semiconductor Industry Association, global sales of semiconductors totaled $144.8 billion during the third quarter of 2021, marked an increase of 27.6% over the third quarter of 2020 and 7.4% from the second quarter of 2021. Although the industry is grappling with a chip crunch, the ever-increasing demand is a plus for the space.
“Semiconductor shipments reached all-time highs in the third quarter of 2021, demonstrating both the ongoing high global demand for chips and the industry’s extraordinary efforts to ramp up production to meet that demand,” said John Neuffer, SIA president and CEO.
Dynamic Semiconductors Invesco ETF (PSI - Free Report) and Vaneck Semiconductor ETF (SMH - Free Report) are two choices out of many that could be loaded up in one’s portfolio with a long-term view.
Cybersecurity
As estimated by the research firm Gartner, global cybersecurity spending jumped 13% in 2021 to $172 billion versus 8% growth in 2020. In both 2022 and 2023, Gartner predicts 11% growth in cybersecurity spending, per an article published on investors.com.
iShares Cybersecurity & Tech ETF (IHAK - Free Report) , Global X Cybersecurity ETF (BUG) and WisdomTree Cybersecurity Fund (WCBR - Free Report) could be tapped for gains.
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2 Tech ETF Areas Likely to Stay Strong Despite Rising Rate Worries
Wall Street has been on choppy ride since the start of 2022 due to rising rate worries. At the end of Jan 26, 2022, the yield on the benchmark 10-year Treasury note jumped 7 basis points to 1.85%. The yield on the 30-year Treasury bond increased 4 basis points to 2.16%. The yield on the benchmark 2-year Treasury note surged 11 bps to 1.13%. Rates have been rising in the United States on the Fed’s rate hike bets as soon as in March.
Higher inflationary expectations emanating from supply chin disruptions as well as higher crude prices should make Fed members comfortable with several rate hikes in the coming days. As of Jan 26, 2022, CME’s FedWatch Tool said that there is 32.6% chance of 2022 closing out with 125-150 bps of rates while a 28.1% probability is there for the year to end at 100-125 bps of rates.
The Nasdaq, heavy on technology and growth stocks, has been downbeat this year. The index is now off more than 10% from its November record, ensuring the fact that it has entered the correction territory. The Nasdaq Composite has lost 13% this year as investors continue to walk out of the high-growth tech shares as interest rates surge to start the new year. The index also plunged 7.6% last week, marking its worst week since March 2020. Heavy reliance on the tech sector led to this lackluster performance.
Since the growth sector relies on easy borrowing for superior growth and its value depends heavily on future earnings, a rise in long-term yields cuts the present value of companies’ future earnings. Apart from the rate issues, the economic reopening amid vaccination and easing Omicron concerns have been pushing investors away from the stay-at-home tech stocks.
Still, there are two tech areas that should stay afloat amid the tech carnage. We highlight those two areas.
ETF Areas in Focus
Semiconductor
Per the Semiconductor Industry Association, global sales of semiconductors totaled $144.8 billion during the third quarter of 2021, marked an increase of 27.6% over the third quarter of 2020 and 7.4% from the second quarter of 2021. Although the industry is grappling with a chip crunch, the ever-increasing demand is a plus for the space.
“Semiconductor shipments reached all-time highs in the third quarter of 2021, demonstrating both the ongoing high global demand for chips and the industry’s extraordinary efforts to ramp up production to meet that demand,” said John Neuffer, SIA president and CEO.
Dynamic Semiconductors Invesco ETF (PSI - Free Report) and Vaneck Semiconductor ETF (SMH - Free Report) are two choices out of many that could be loaded up in one’s portfolio with a long-term view.
Cybersecurity
As estimated by the research firm Gartner, global cybersecurity spending jumped 13% in 2021 to $172 billion versus 8% growth in 2020. In both 2022 and 2023, Gartner predicts 11% growth in cybersecurity spending, per an article published on investors.com.
iShares Cybersecurity & Tech ETF (IHAK - Free Report) , Global X Cybersecurity ETF (BUG) and WisdomTree Cybersecurity Fund (WCBR - Free Report) could be tapped for gains.