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U.S. tech stocks have hit rough weather lately due to the banking crisis in the United States. The failures of Silicon Valley Bank and Signature Bank in the United States, the buying of Credit Suisse by the UBS and the panic-selling in Deutsche Bank led investors to look for safe-haven in the equity space. In this pursuit, tech ETFs emerged winners lately.
Communications services and IT stocks came across as winning sectors in the S&P 500 in the recent period and investors continue to buy. Tech stocks were hurt heavily in 2022 as surging inflation weighed on their lofty valuations caused by massive policy easing during the peak of the COVID-19 outbreak.
Although tech stocks tried to recoup losses several times, investors remained cautious about betting big on growth stocks. Rising rate worries dampened the appeal of the stocks that rely on easy borrowing for superior growth. Hence, shares of high-growth technology companies remain in a tight spot.
As a result, the largest tech ETF Technology Select Sector SPDR Fund (XLK - Free Report) has lost about 8.5% past year (as of Mar 27, 2023) and but has added about 14.9% this year.
Slower Rate Hikes in the Coming Days
The Federal Reserve hiked its benchmark interest rate by 25 bps last week. The latest hike took it to a target range of 4.75%-5.00%, the highest since October 2007. The move also marked the ninth increase in rates since March 2022.
In a statement, the Fed said recent banking sector developments are likely to bring "tighter credit conditions for households and businesses.” The Fed also expects the PCE inflation to be 3.3% for 2023 (up from 3.1% projected in December).
The forward outlook, based on a median survey of FOMC members, expects only one more 25 bps hike throughout the rest of 2023. This can go in favor of the technology stocks and ETFs after a tough 2022.
Layoffs to Boost Profitability?
Silicon Valley layoffs have been intense. Amazon, Meta, Twitter, Salesforce – most of the tech giants have been on layoff spree. Video-sharing outlet Vimeo said it was axing 11% of its workforce. The digital fashion platform Stitch Fix said it planned to cut 20% of its salaried staff, after having slashed 15% of its salaried staff last year. Such layoffs and cost reduction may boost profitability of the tech companies.
Tech is New Normal
“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and the growing video-streaming scenario are sure to stay for long. The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are the other winning areas. Expanding data centers will continue to bolster the cloud business. Also, strong focus on AI techniques and the home automation space should the technology sector.
ETFs in Focus
Against this backdrop, below we highlight a few tech ETFs that have been in momentum in the past one month (as of Mar 27, 2023).
Image: Bigstock
Are Tech ETFs Safe Bets Amid Banking Crisis?
U.S. tech stocks have hit rough weather lately due to the banking crisis in the United States. The failures of Silicon Valley Bank and Signature Bank in the United States, the buying of Credit Suisse by the UBS and the panic-selling in Deutsche Bank led investors to look for safe-haven in the equity space. In this pursuit, tech ETFs emerged winners lately.
Communications services and IT stocks came across as winning sectors in the S&P 500 in the recent period and investors continue to buy. Tech stocks were hurt heavily in 2022 as surging inflation weighed on their lofty valuations caused by massive policy easing during the peak of the COVID-19 outbreak.
Although tech stocks tried to recoup losses several times, investors remained cautious about betting big on growth stocks. Rising rate worries dampened the appeal of the stocks that rely on easy borrowing for superior growth. Hence, shares of high-growth technology companies remain in a tight spot.
As a result, the largest tech ETF Technology Select Sector SPDR Fund (XLK - Free Report) has lost about 8.5% past year (as of Mar 27, 2023) and but has added about 14.9% this year.
Slower Rate Hikes in the Coming Days
The Federal Reserve hiked its benchmark interest rate by 25 bps last week. The latest hike took it to a target range of 4.75%-5.00%, the highest since October 2007. The move also marked the ninth increase in rates since March 2022.
In a statement, the Fed said recent banking sector developments are likely to bring "tighter credit conditions for households and businesses.” The Fed also expects the PCE inflation to be 3.3% for 2023 (up from 3.1% projected in December).
The forward outlook, based on a median survey of FOMC members, expects only one more 25 bps hike throughout the rest of 2023. This can go in favor of the technology stocks and ETFs after a tough 2022.
Layoffs to Boost Profitability?
Silicon Valley layoffs have been intense. Amazon, Meta, Twitter, Salesforce – most of the tech giants have been on layoff spree. Video-sharing outlet Vimeo said it was axing 11% of its workforce. The digital fashion platform Stitch Fix said it planned to cut 20% of its salaried staff, after having slashed 15% of its salaried staff last year. Such layoffs and cost reduction may boost profitability of the tech companies.
Tech is New Normal
“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and the growing video-streaming scenario are sure to stay for long. The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are the other winning areas. Expanding data centers will continue to bolster the cloud business. Also, strong focus on AI techniques and the home automation space should the technology sector.
ETFs in Focus
Against this backdrop, below we highlight a few tech ETFs that have been in momentum in the past one month (as of Mar 27, 2023).
Global X Metaverse ETF – Up 9.9%
Roundhill Ball Metaverse ETF (METV - Free Report) – Up 9.1%
iShares U.S. Technology ETF (IYW - Free Report) – Up 8.8%
VanEck Digital Assets Mining ETF – Up 8.1%
First Trust Indxx Metaverse ETF (ARVR - Free Report) – Up 7.9%
Invesco Alerian Galaxy Crypto Economy ETF (SATO - Free Report) – Up 7.7%