ETFs
Can technology ETFs continue their winning momentum?
Investors maintained their bullish stance on stocks for the seventh straight week, pouring $4.6 billion into U.S. equity funds. US technology stocks recorded their strongest weekly inflows last week in nine weeks as the sector saw a recovery after its mega-cap-led rally petered out in late May, according to BofA Global Research strategists cited on MarketWatch.
Tech stocks brought in nearly $1 billion in the week ending Wednesday, the most in more than two months, after seeing the same amount of outflows the week before, a team of strategists said led by Michael Hartnett, chief investment strategist at BofA Global Research. in a customer note Friday.
NVIDIA and Apple Reach Trillion Dollar Milestone
NVIDIA Corp. NVDA reached a remarkable milestone as its market capitalization exceeded $3 trillion for the first time, propelling its stock by more than 6%. Meanwhile, Apple Inc. also saw its market capitalization surpass $3 trillion, achieving its first close at or above that threshold since January. Apple AAPL gained 2% last week.
A fall in Treasury yields boosts markets
A drop in Treasury yields earlier in the week reinforced the market rally. The 10-year and 30-year rates reached their lowest levels since the end of March 28. It’s no wonder that along with tech, utility stocks (which perform well in a low-rate environment) have seen a surge in demand, attracting around $1 billion. their highest weekly inflow since January 2022, according to BofA strategists.
A new rate hike in the cards?
The positive dynamic notably suffered a setback on Friday, caused by unexpected strength in the American labor market. The development has investors wondering whether the Fed will initiate an interest rate cut this year sooner than expected.
The 10-year Treasury yield jumped 14.8 basis points to 4.428%, while the 30-year rate jumped 11.8 basis points to 4.547% on Friday. If rates remain high for longer, there is a risk of a hard landing for the US economy, instead of the “no landing” scenario currently expected.
Will technological domination continue?
Over the past 20 years, technology ETFs Technology Select Sector SPDR (XLK) had a compound annual return of 13.99%, with a standard deviation of 18.05%. Over the past 20 years, the inflation-adjusted return of XLK in the United States is 11.12%. The XLK ETF has performed fairly consistently over the past seven years, posting gains in five years.
In 2018, the fund fell 1.7%. However, the fund plunged 27.7% in 2022 due to overvaluation concerns and rising rates. But investors should note that XLK amassed around $1 billion during its difficult 2022. Therefore, this year too, the fund should not be short of strong assets. After all, the fund’s operating environment is quite strong.
The story continues
With the AI boom taking the world in its grip, the technology sector has every reason to grow. Chip companies make announcements related to next-generation chip launches every other day (read: Chip ETFs Focus on Next-Gen AI Product Launches).
Notably, the AI market is expected to reach $184.0 billion in 2024. The market size is expected to show an annual growth of 28.46%, resulting in a market volume of $826.7 billion. here 2030, according to Statista.
Conclusion
Despite concerns over rising rates, technology ETFs have demonstrated strong historical performance. With the current boom in AI and advancements in chip technology, the technology sector is poised for substantial growth, both in terms of performance and asset generation.
With XLK, investors can follow iShares ETF for the broad technology sector IGM (up 20% this year), Invesco Nasdaq Internet ETF PNQI (+13% this year) and Invesco AI ETFs and next-generation software IGPT (up 23% this year).
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Apple Inc. (AAPL): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Invesco NASDAQ Internet ETF (PNQI): ETF Research Reports
iShares Expanded Tech Sector ETF (IGM): ETF Research Reports
Invesco AI ETF and Next Generation Software (IGPT): ETF Research Reports