Technology Sector Set For A Rebound?

There has been quite a bit of chatter about the FANG stocks recently.In fact, the entire Technology Sector has taken a beating over the past 30+ days. The Technology sector is setting up for a 15%+ price rebound from these recent lows.

Let’s start by taking a look at a 1 Month S&P Heat Map showing just how distressed certain sectors are in terms of price valuations. The Brighter Red highlighted symbols represent a price decrease of at least -6.7% to well above -10% over the past 30 days. It is pretty easy to see the entire Technology, Technology Services, Financial, and Consumer Goods sectors are all under some pricing pressure. What interests us is we call the “capital shift” that has been taking place over the past 4+ years.

A global capital shift has been taking place on the back of multiple global QE attempts to support the global economies. The premise of my theory is that capital is constantly seeking the safest locations to be deployed with the highest potential for returns.

Prior to the US Fed raising interest rates over the past 14+ months, the US Real Estate market was a perfect example of this shift in capital. Additionally, over the past 3+ years, the US Technology sector has been another great example of this shift in capital. As the Emerging Market boob cycle went bust, capital went in search of better targets. As the Oil market went bust, resulting in currency pricing pressures, capital continued to search out the best, most stable, investments and growth opportunities. Most of that capital found its way into the US stock market (into technology, biotech, finance, and healthcare).

I believe this capital shift is now under pressure across the globe to identify and execute for longer-term returns and the recent price rotation in the US Equities markets may give this capital further incentive to redeploy into the US Equities market.

Capital MUST find suitable locations for growth, protection, and healthy longer-term returns. One can’t simply keep moving billions of dollars of capital around to various investments every few weeks. Currency concerns are constantly a worry for global investors. Placing your capital into the wrong investment could result in a net loss because currency valuations may destroy your trading profits if you are not cautious. Global concerns regarding the Arab nations, oil production, Asia/China trade/economic issues and the never-ending European Union issues really only leave one location on the planet that is somewhat immune from extended risk – the US Equities market.