An aging capital stock appears to be driving some rebound in corporate spending. Real fixed investment grew at a healthy 8.1% annualized rate in the second quarter and has averaged more than 6% during the past three years, as the figure below shows.
A return to a more robust capex environment would benefit technology companies, particularly those geared to corporate spending.
Finally, while another repeat of the 1990s is unlikely, it’s worth highlighting that the long tech rally of that decade coincided with the last period of strong investment. Between the start of 1993 and the bursting of the technology bubble, real fixed investment increased at an average annualized rate of more than 8%. During that same period, the S&P 500 technology sector advanced more than 1,200% versus gains of roughly 250% for the broader U.S. market.
While I don’t expect a repeat of that rally – for one thing, back in late 1992 technology stocks were trading at roughly half their current valuations – a long overdue capital spending cycle will likely add another tailwind for tech stocks. For more on why I like the technology sector, be sure to check out my latest Investment Directions monthly market outlook.
Sources: Bloomberg, BlackRock research
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.