US tech buoyed as investors target earnings growth

It is the part of the stock market that simply refuses to lie down. Despite declines earlier in August, US technology stocks were still the best performing sector on the S&P 500 last month.

The news of the timetable for the launch of the latest iPhone stirred more interest in Apple shares, which have gained 41 per cent this year.

The S&P 500 info technology index has rallied a quarter so far in 2017, outpacing healthcare’s rise of 17.6 per cent and a 12 per cent gain for utilities.

With the year marked by bouts of concern over the US economy, the sector has been a beneficiary of investors’ willingness to pay up for companies with earnings growth.

Forecasts suggest that tech will continue to deliver on that front, albeit at a slower pace than at the start of the year. According to Factset, the sector’s earnings are expected to rise by 9.1 per cent this quarter from the same period last year. They rose just over 15 per cent in the second quarter. The possibility of a tax plan from the Trump administration that includes incentives to repatriate overseas earnings would also be a boon for cash-rich tech companies.

However, as the middle weeks of August showed, the sector will remain vulnerable to money managers and other investors looking to crystallise gains and rotate into parts of the market that have fared less well.

“Tech will serve as one of the areas where folks will take profits because it has done so well,” said Michael Arone, chief investment strategist at State Street Global Advisors. “If we have some volatility, it would not surprise me if one of the first areas investors look to take profits will be tech.”

Among the major S&P sectors, energy remains a laggard, down 16 per cent for 2017.

The centre of attention for global energy markets will remain in Texas, where the devastating storm has cost lives, displaced tens of thousands and wrought billions of dollars worth of damage.

For energy markets, the key questions will be how quickly the refining capacity that was knocked out by the storm returns and, then how rapidly the pipelines that have also been closed or interrupted, can move the gasoline to the key consuming areas on the east coast.

Economists at Barclays estimate that the fallout of the storm could cut US gross domestic product by between 1 and 1.5 percentage points in third quarter given the “high value-added energy sector” that the Gulf Coast is home to.

Policymakers at the Federal Reserve should have a clearer idea of the extent of the economic drag from the storm by the time they next meet on September 19-20.

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