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Tech: A Sector to Avoid…At Least Today

The rumors continue to swirl about the possibility of a speculative tech bubble, with what is seen as a crowded market for internet IPOs. But bubble or no bubble, the tech sector isn’t looking good these days.

As of the close on Friday, tech is negative for the year. The Nasdaq Composite Index is down -.34% year-to-date, while the Dow is up 4.42%, and the S&P 500 is up 1.93%.

And tech sector is lagging behind other sectors, down -.2% year-to-date (only financials have seen a greater decline so far this year).

Of course, the argument can be made that there are opportunities in the tech space, since valuations are cheap these days (the cheapest since 1998, according to Bloomberg). And fears of a bubble are likely exaggerated, with tech earnings today almost double what they were at the peak of the internet bubble. Last year, profits for tech S&P components totaled $153.6 billion…vs. $72.98 billion in 2000 (when the S&P 500 Information Technology Index hit an all time high, according to Bloomberg). And at the height of the internet bubble, tech companies made up 34% of the S&P 500…today it stands at 18%.

A bubble may not be that likely, and tech may look cheap, but I would still hold for the immediate future. Looking at a proxy for the sector, Technology Select Sector SPDR (XLK), recent action signaled an intermediate-term sell (but the fund is still a long-term buy). At this point, shares are clearly oversold, but I would look for a bounce back (at least above $25.50) before entering a position.


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