Despite all the volatility, investors are in love with many types of stocks right now…
Energy stocks are leading the way. That makes sense since the price of oil is nearing an all-time high.
And earlier this week, we talked about certain financial companies that should do well amid the “brand-new ballgame” of rising interest rates. And thanks to the crisis in Ukraine, defense-related businesses are becoming more popular with investors as well.
However, not all stocks are feeling wanted by investors at the moment. In fact, a lot of folks are currently snubbing Mr. Market’s main love interest from the past two decades.
But as I’ll explain in today’s essay, these relationship issues won’t last forever…
In case you didn’t know, Mr. Market’s main love interest is the technology sector…
The tech-heavy Invesco QQQ Trust (QQQ) has returned 696% since it debuted in March 1999. Meanwhile, the SPDR S&P 500 Fund (SPY) – the exchange-traded fund that tracks the benchmark stock index – has only returned 423% in that same period.
That’s a significant outperformance of 273 percentage points over the past 23 years.
But lately, Mr. Market’s parents are encouraging him to step back from this relationship…
Tech is too greedy, they say. And besides, tech isn’t such a kind partner today. (Translation: Stock valuations are too high for the growth and quality being delivered.)
As a result, the relationship is rocky right now…
The Invesco QQQ Trust is down about 11% since late December. At the same time, the Energy Select Sector SPDR Fund (XLE) has returned 40% since then.
It seems like the market is looking around for new potential lovers.
Cute love story aside, though… the reality is that Mr. Market won’t forget the tech sector forever.
The reason is simple…
The all-encompassing “technology” sector contains just about every company that’s making major advances in humanity’s progress. That might sound grandiose. But it’s true…
Everything from computers… to the Internet… to the smartphones in our hands… and even the dating apps on them… falls into the broad technology category. So it’s no wonder Mr. Market finds himself so drawn to the sector – even when it hurts, like right now.
That leaves investors in a tough position…
You see, tech stocks will nearly always have an “overvalued” feel to them.
But it doesn’t matter if they’re a little expensive… Mr. Market won’t forget them forever.
We caught a glimpse of that just last week… The SPDR S&P 500 Fund gained 6% on the week. But the tech-heavy Invesco QQQ Trust finished stronger with a 10% gain.
You can’t sit on the sidelines waiting for Mr. Market to fall out of love with tech… It won’t happen.
So when he strays just a little bit – like he’s doing this year with energy stocks – consider taking advantage of it.
Good investing,
Marc Gerstein
