Macro Minutes: Info Tech Sector Update

Key Points

  • The S&P has recovered almost 40% since March lows, which we primarily attribute to markets pre-pricing a brighter economic future, with most COVID-19 economic contractions deemed to be self-inflicted and temporary in nature.
  • The economic fallout from COVID-19 has been disproportionately hard on travel, hospitality, retail, and restaurant related industries. While these highly visible slices of the economy make up a sizable portion of the US labour market and GDP contribution, they have less impact on large cap indices. Tech and Tech-like industries, which account for nearly 40% of the S&P, saw minimal labour disruptions.
  • Many fear Tech valuations are elevated, and while valuations are high by some metrics, we view them as largely justified by fundamentals that continue to beat expectations.
  • The case for Tech has improved this year, as outperformance has only grown. Large gains occurred in e-commerce as consumer behaviour shifted to online consumption, benefiting Tech and Tech-like stocks.
Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.