Apple Inc. (NASDAQ: AAPL) is the best-performing stock in the S&P 500 and the Dow Jones Industrial Average this year, leading both widely followed indexes by wide margins. So it is not surprising that technology, the largest sector weight in the S&P 500, is leading the broader market higher.
Technology exchange traded funds, particularly those with significant Apple exposure, are benefiting. The Technology Select Sector SPDR (NYSEArca: XLK), the largest technology exchange traded fund by assets, along with rival, traditional technology ETFs such as the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC) and the Vanguard Information Technology ETF (NYSEArca: VGT) have posted double-digit year-to-date gains.
Technology companies have been prodigious generators of free cash, a trend that could be enhance if politics cooperate.
The tech sector could even see more free cash on hand if Congress proceeds with plans to cut down capital gains on repatriated earnings or follow in President-elect Donald Trump’s proposed repatriation tax holiday policy that would encourage large multi-national companies to bring back hundreds of billions of dollars in cash to the U.S. for possible use in dividends, deals or other projects. Trump plans to levy a 10% repatriation tax on U.S. companies’ overseas profits from foreign subsidiaries, compared to the current 35% tax rate.
“The tech surge is far from over, say analysts and traders who see even more record highs ahead for some of the sector’s biggest names. The Nasdaq composite hit yet another intraday all-time high on Monday, marking the index’s 21st record-setting day this year. Tech stocks were again the main drivers behind the new Nasdaq record, with names like Alphabet making the biggest positive point impact on the index,” according to CNBC.
“Heading into the first quarter 2017 earnings season, the S&P 500 information technology sector is expected to expand to 16.5 percent according to S&P Capital IQ consensus estimates, representing the highest growth in the index after energy and ahead of the S&P 500’s 9.9 percent,” said CFRA Research in a note out Monday. “While, energy is projected to bounce back from a prior loss, technology is likely to be a top three growth leader for the S&P 500 index for the third quarter in a row, according to Lindsey Bell, an investment strategist at CFRA Research.”
The aforementioned VGT allocates over 13% of its weight to chip stocks.
For more news and strategy on the Technology market, visit our Technology category.
Tom Lydon’s clients own shares of Apple.