As the economy grows, consumers tend to spend more on discretionary items and companies feel confident to invest in their expansion.
The U.S. tech sector is particularly poised to take advantage of this cyclical economic shift. As my colleague, Russ Koesterich, and I discuss in our new white paper, “U.S. Tech: Sending a Strong Signal,” health care, finance and other service industries are likely to increase investment in information technology―everything from data storage to new desktop computers. Also, the large millennial population will drive the usage of mobile technology and online networks.
And historically, tech has weathered interest rate hikes better than many other sectors. Today, the overall tech sector holds more than half of total corporate cash reserves in the U.S., which means if rates rise, mature U.S tech will better positioned to handle increasing borrowing costs and invest in their own growth.
Not too late
We still see solid upside potential in U.S. tech stocks, and the iShares U.S. Technology ETF (IYW) is a simple way to increase your investment in the sector. It provides dedicated exposure to electronics, computer software and hardware, and information technology stocks. And its top holdings include mature tech companies such as Apple, Microsoft and Intel[1].
When’s the best time to buy? We anticipate increasing volatility in the stock markets this year, and tech is no exception. So keep an eye on market pullbacks and consider investing on the dips.
Source: Bloomberg as of 1/15/15
Heidi Richardson is a Global Investment Strategist at BlackRock, working with Chief Investment Strategist Russ Koesterich. She also leads the iThinking initiative for iShares. You can find more of her posts here.