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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 labor 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 labor 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 behavior shifted to online consumption, benefiting Tech and Tech-like stocks.
Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations.