The Most Compelling Reason to Buy Tech Stocks Now
Let me ask you two important questions:
- Why should you buy technology stocks?
- And why should you buy technology stocks right now?
As it turns out, the answer to both questions is pretty darn easy.
First, the tech sector is the epicenter of innovation. And breakthrough innovations always translate into large profits for investors. So regardless of the climate, we should always be on the lookout for the world’s most innovative companies.
And now is a particularly good time to do so?
Well, in this Fed-fueled economy, cash provides unparalleled downside protection. And as I said last week, no companies have more cash than tech companies.
But there’s another reason…
I recently dug up the most compelling bullish statistic about technology investments. And it couldn’t have happened at a better time, either.
Happy July 4… From the Fed
With interest rates at historic lows – and no place to go but up – investors are wondering what stocks to own as rates rise.
Adding urgency to the situation is the Fed’s recent admission that it’s going to curb its money-printing addiction… and soon.
Well, guess what? The answer is technology stocks.
After analyzing the 13 rising-rate environments we’ve experienced since 1946, Standard & Poor’s Sam Stovall found that technology stocks fare best.
As you can see, the tech sector tends to rise by an average of 20% in the 12 months following the first interest rate hike. It outperforms the broader stock market nearly 70% of the time, too.
If you’re wondering why technology outperforms other sectors so well, it actually makes perfect sense…
Two Reasons Why Tech Loves Rising Rates
Think about it: Technology companies help others improve productivity.
So as interest rates rise, and the economy cools, America spends more on technology so that companies can do more with less. In turn, technology firms benefit from the boost in sales.
What’s more, technology companies typically don’t borrow much money. So as rates rise, there’s less risk of interest charges significantly cutting into their margins. Contrast that with utility companies, for example, which rely heavily on debt.
The reason why this information is so timely couldn’t be more straightforward…
Your Mission is Clear: Bet Big on Tech… Now!
As we know, the market is a forward-looking beast. Stock prices naturally take future economic expectations into account. So once we catch a whiff of an interest rate hike on the horizon, the rotation into tech stocks should begin.
And right on cue, the “smart money” appears to be springing into action.
Just as the Fed said it would start tapering its bond purchases – a precursor to raising rates – Bank of America Merrill Lynch’s (BAC) high-net-worth individuals, hedge funds, and institutional clients bet on tech in a big way.
During the week of June 17, the three groups collectively invested a record amount in tech stocks – close to $1.5 billion. Remember, this was the same week that the S&P 500 shed 2.1%.
Coincidence? Not a chance.
Although Fed Chairman, Ben Bernanke, swears that an interest rate hike is “still far in the future,” the market is already doing his work for him.
Since May, yields on 10-year and 30-year U.S. Treasuries are up about 75 basis points, which is equivalent to about three Fed rate hikes.
The message is clear: With the market moving ahead of the Fed, it’s time to follow the smart money’s lead and bet big on tech before it’s too late.
Ahead of the tape,