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.