The technology sector has largely shown strong resilience to the pandemic, rewarding investors with solid returns. In fact, the S&P 500 Information Technology index has returned 35.7% in the past year.
Notably, the Fed held interest rates steady at a near-zero level in its latest meeting. Federal Reserve chief Jerome Powell has reportedly said that the central bank wants to see “substantial further progress” in terms of maximum employment and stability in price inflation before it would resort to lowering bond purchases, per a CNBC article. The Fed wants inflation to moderately exceed its 2% average inflation target.
Let’s look at some reasons why it will be prudent to park your money in the technology space:
Delta Variant Continues to Spread
The United States is seeing a rising number of new delta variant cases. It has witnessed a seven-day moving average of about 72,790 new cases per day on Jul 30, per Centers for Disease Control and Prevention (CDC) data and as mentioned in a CNBC report. Unfortunately, the number has exceeded the peak of about 68,700 new cases per day observed last summer, at a time when the United States didn’t have an authorized vaccine, according to CDC Director Dr. Rochelle Walensky (per a CNBC article).
According to Johns Hopkins University data, the seven-day average rose to about 80,000 new cases per day as of Aug 1, as stated in a CNBC article. In the past seven days, there was at least a 50% rise in cases in 36 states (as of Jul 29), according to Johns Hopkins University data.
The delta variant is a serious concern as the number of new cases arising from the variant is being mostly observed among the unvaccinated population. In order to combat the situation, President Joe Biden has informed about some new initiatives to improve the vaccination rate. One of the measures include making it mandatory for all federal employees to attest to being vaccinated or deal with strict protocols, according to a CNN report.
Major companies are also making it mandatory for their employees to get vaccinated before returning to company campuses. Important names like Google (GOOGL), Facebook (FB), Netflix (NFLX) and BlackRock can be safely added to the list of companies with a vaccine mandate.
The CDC has updated its recommendations to asking people to wear a mask indoors in areas with risks of “substantial and high transmission” of COVID-19 as well as in K-12 schools, regardless of vaccination status (per a MarketWatch article). Accordingly, big names like Target (TGT), Walmart (WMT), Kroger (KR) and Apple (AAPL) have now implemented mask mandate following the CDC recommendation.
New Normal Trends to Pick Up Again
As the U.S. economy was reopening, an increasing number of American shoppers were seen to be visiting stores for some retail therapy. However, with the surging delta variant cases, shoppers are believed to again resort to online shopping.
Certain other ‘new normal’ trends have also emerged amid the health crisis like work from home, increasing digital payments, growing video streaming as well as soaring video game sales. The pandemic is also a boon for the e-commerce industry as people continue staying indoors and shopping online for all essentials, especially food items.
Further, the semiconductor space has been gaining from expanding digitization and growing dependency on the Internet owing to some new normal trends like online shopping, work from home, digital payments, digitization of healthcare, rising demand for video gaming and many more. In fact, growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are expected to keep the sector brewing with opportunities in 2021.
Technology has played a major role in the ongoing health crisis. Telemedicine and Digital Health are receiving significant importance. In the present era, data management and storage have become an integral aspect of healthcare. Moreover, the pandemic led to an increase in doctors preferring online consultations. Thus, with the technological advancements in the healthcare sector and the rising adoption of healthcare IT solutions as well as advantages of cloud usage healthcare, the cloud computing market is on a growth trajectory. The space is forecast to reach a worth of $64.7 billion by 2025 from $28.1 billion in 2020, at a CAGR of 18.1%, according to ReportsnReports.
Moving on, cloud computing has emerged as a key technology and is keeping up with the growing work-from-home trend in the fight against coronavirus. It is supporting organizations in remotely processing a lot of information, developing and running key applications and services, and helping employees across the world collaborate while working. The work-from-home model has bumped up sales of PCs, laptops and other kind of computer peripherals as well.
Technology ETFs to Bet on
All the factors discussed above highlight the instrumental role that technology plays amid the ongoing COVID-19 uncertainty in aiding people to maintain safe-distancing norms. Thus, investors could consider the following ETFs:
Vanguard Information Technology ETF VGT
The fund seeks to track the performance of the MSCI US Investable Market Information Technology 25/50 Index. It has AUM of $49.22 billion. It charges investors 10 basis points (bps) in annual fees. The fund currently sports a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Tech ETFs to Gain on Upbeat Apple, Microsoft Earnings).
The Technology Select Sector SPDR Fund XLK
The fund seeks to provide investment results that before expenses correspond generally with the price and yield performance of the Technology Select Sector Index. It has AUM of $44.56 billion. It charges investors 12 bps in annual fees. The fund presently flaunts a Zacks ETF Rank of 2, with a Medium-risk outlook (read: Fed Less Likely to Taper Soon on Delta Concerns: ETFs to Buy).
iShares U.S. Technology ETF IYW
The fund seeks to provide investment results that before expenses correspond generally with the price and yield performance of the Dow Jones U.S. Technology Capped Index. It has AUM of $8.24 billion. It charges investors 43 bps in annual fees as stated in the prospectus. The fund currently sports a Zacks ETF Rank #2, with a Medium-risk outlook (read: 5 Top-Ranked ETF Winners of July With More Upside Potential).
First Trust NASDAQ-100-Technology Sector Index Fund QTEC
The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield of the NASDAQ-100 Technology Sector Index. It has AUM of $3.69 billion. It charges investors 57 bps in annual fees. The fund also flaunts a Zacks ETF Rank #2 at present, with a High-risk outlook.
Breakout Biotech Stocks with Triple-Digit Profit Potential
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.