The stock market has been quite strong over the past few weeks, as it’s managed to break out of its multi-month consolidation. One interesting change in character has been the outperformance in tech stocks since mid-May.
Since May 13, the tech-heavy Nasdaq is up by 11.5%, while the S&P 500 is up 5.3% over the same period. Of course, this follows many months of underperformance in tech stocks. Some of the catalysts for this change in behavior are that the last two earnings seasons have been quite strong for tech. Additionally, longer-term rates have also backed off which was one of the major catalysts for the rotation from growth to value.
There’s a vigorous debate about whether tech stocks are going to continue outperforming or whether value and cyclical stocks will lead the market higher as they did from November to May. Tech bulls will point to softening economic data, deceleration in leading indicators of inflation, and favorable valuations for the sector. If tech continues to outperform, then investors should consider buying the following ETFs: Renaissance IPO ETF (IPO – Get Rating), Global X Social Media ETF (SOCL – Get Rating), VanEck Vectors Semiconductor ETF (SMH – Get Rating), and ARK Innovation ETF (ARKK – Get Rating).
Renaissance IPO ETF (IPO)
IPO is an ETF that holds some of the highest-profile IPOs of the past couple of years such as Snowflake (SNOW), Palantir (PLTR), and Peloton (PTON). While Nasdaq made new highs this week, IPO remained 15% off its highs from mid-February.
If tech stocks keep going higher, then it’s likely that underperforming parts of the tech sector will catch up. This is especially true as IPOs tend to be higher beta and outperform when risk appetites are strong. Thus, the sector was particularly hit hard during the sell-off of growth stocks during which speculative and higher-beta stocks saw the biggest losses.
However, IPO was one of the best-performing ETFs during the first part of the bull market as it gained 279% from the bottom in March 2020 to its high in February of this year. The POWR Ratings are also bullish on IPO as it is rated a B which translates to a Buy rating.
The POWR Ratings also evaluates stocks based on various components. Here, IPO also shines as it has an A for Trade Grade. This is consistent with its recent momentum and potential for a rapid move higher if tech continues to move higher.
Global X Social Media ETF (SOCL)
Similar to IPO, SOCL was a major outperformer from March 2020 to February 2021. Most importantly, these businesses saw an acceleration in user growth and time spent on platforms during the coronavirus. Further, these companies also have high margins which can lead to optimistic assumptions about future earnings growth especially when revenues are accelerating.
It’s likely that if tech stocks are going to continue outperforming, then investors will…
Continue reading at STOCKNEWS.com