While investors are hoping for a Federal Reserve rate cut to prop up the capital markets, investors can still see a wall of worry growing in the backdrop, which is sparking concerns of a global economic slowdown. As second-quarter earnings season rolls on, technology could also help make or break equities.

Even if a permanent trade deal between the U.S. and China gives equities a healthy boost in the short-term, it won’t allay long-term concerns–this is where defensive positioning comes into play. This means choosing the right sectors for exposure and within the technology sector, there are still some gains to be had.

That being said, the search for alpha hasn’t stopped investors from pouring into the technology sector. Earlier this year, the Nasdaq Composite hit a closing high with the help of strength from the likes of market leaders like Apple, Microsoft and Amazon.

There are some challenges to overcome, however. Data company FactSet has been warning investors about an earnings recession in the S&P 500. This recession risk could put defensive sectors in concentrated focus as opposed to the more cyclical sectors, which provides an opportunity for relative weight exchange-traded funds (ETFs).

FactSet estimated that an earnings drop of 1.9 percent would result in the second quarter of 2019. In turn, that would come after a 0.5 percent drop in the first quarter, which would mean that an official earnings session would be underway if their forecasts are correct.

It’s the primary driver for investors looking for a rate cut to help prop up the market, especially after a U.S.-China trade deal that was supposed to happen eventually fell through.

“The overall market number for EPS (earnings per share) masks a very uneven picture underneath that a number of sectors are either in an earnings recession or something close to it,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “That raises questions of the strength of the economy, whether we should be concerned about a recession if this doesn’t turn around in some way. That’s why the Fed is looking at potentially cutting rates and why people are looking for a rate cut.”

Here is a list of tech equity ETFs that have been the best performers thus far in 2019 (does not include leveraged funds):

SymbolETF NameYTD
PTFInvesco DWA Technology Momentum ETF48.40%
XSDSPDR S&P Semiconductor ETF46.25%
SOXXiShares PHLX Semiconductor ETF41.44%
SMHVanEck Vectors Semiconductor ETF41.28%
IPAYETFMG Prime Mobile Payments ETF40.54%
FTXLFirst Trust Nasdaq Semiconductor ETF40.11%

 

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