Tech Stocks Offer A Rare Bright Spot For 2020 Sector Returns

The US stock market’s volatile run in 2020 has left most corners of the equity market with deep losses or mostly flat results this year — with one glaring exception: technology. Year to date, the tech sector is enjoying a solid gain – a conspicuous outlier so far in 2020, based on a set of exchange traded funds.

Technology Select Sector SPDR (XLK) is up 6.1% so far this year (through May 28). Although the fund was clobbered with everything else during the dramatic selling wave in March, the fund has rebounded sharply and has recovered nearly all its previous loss.

Even health care, presumably the darling sector in a health care crisis, can’t compete on a year-to-date basis. Although Health Care Select Sector SPDR (XLV) has also mounted a robust recovery in recent weeks, at the moment the fund’s year-to-date performance is virtually flat with a fractional 0.4% gain.

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In fact, most of the US equity market’s sectors remain underwater this year, with financials and energy leading the red-ink brigade. Energy Select Sector SPDR Fund (XLE) is the worst performer in 2020. Although the fund has bounced modestly since late-March, it remains deep in the hole with a 33.6% decline this year.

Stocks generally continue to suffer on a year-to-date basis. The market benchmark remains down 5.3% through yesterday’s closed, based on SPDR S&P 500 (SPY).

A key driver of tech’s rally is linked to expectations of rising fortunes for the largest companies in the sector. In a sign of the times, the leading names in this corner are reportedly ramping up searches to exploit opportunities. The FT notes that the largest tech firms are on a “pandemic mergers-and-acquisitions spree,” courtesy of high cash balances in the hundreds of billions of dollars.

“This crisis threatens to further entrench the power of Big Tech,” notes Sandeep Vaheesan, legal director at the Open Markets Institute, a think-tank. “These companies are already extraordinarily powerful, but they’re well positioned to emerge as the biggest winners of COVID-19 unless some legislative action is taken.”

The question is whether there’s a political backlash is brewing? The topic appears to be heating up after President Donald Trump yesterday signed an executive order that reduces legal protections for social media companies.

It’s unclear what awaits the tech sector from a regulatory perspective. But for traders looking for opportunities to take sector profits, the tech sector’s gains this year are a rare bird.

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