Buy Tech ETFs on the Dip


(Kitco News) – Gold prices have hit their highest level in more than seven years as the growing number of COVID-19 cases means increased worries about the economy, with some market participants moving into gold as a hedge in case equities tumble again, analysts said.

“The fundamentals this week seem to be a little more bullish,” Phil Flynn, senior market analyst with Price Futures Group, told Kitco News. “The market is finally starting to grasp the impact of all the economic stimulus and the fact that it’s going to continue for some time.”

In fact, others said, traders are starting to anticipate even more stimulus and monetary accommodation.

“And because there is some concern about the stock market being too high too quickly, we’re seeing a little bit more hedging back into gold,” Flynn added. “The technicals right now look like we’re in breakout mode.”

Around 8 a.m. EDT, Comex August gold was $9.60 higher to $1,791.60 an ounce and peaked at $1,796.10. Spot metal was $8.75 higher to $1,775.80 and traded up to $1,778.30, its most muscular level since October 2012. Meanwhile, the futures for the Dow Jones Industrial Average were more than 200 points lower in electronic trading ahead of the open on Wall Street.

“Gold prices continue to push higher, moving close to the $1,800/oz level as the yield on U.S. 10-year inflation-linked bonds dropped even further into negative territory,” said a research note from BMO Capital Markets. “We would reiterate that, of all the correlations used to analyze gold, that 10-year TIPS [Treasury Inflation-Protected Securities] has proven the most reliable through the cycle.”

Flynn noted that traders are focused on the $1,800-an-ounce psychological level, watching to see if the market can push through this on Wednesday.

“Based on the momentum, I wouldn’t be surprised to see us go even higher than that in the short term. We have a target in the short term of around $1,850,” he said.

George Gero, managing director with RBC Wealth Management, attributed gold’s strength to softer equities and worries that the rise in COVID-19 cases could impede the economy’s attempt to rebound. “All this means haven buyers,” he said.

Commerzbank pointed out that an average of 150,000 new coronavirus cases has been reported in the last seven days, the most ever, with the biggest increases occurring in the U.S. and Latin America. A number of U.S. states are reporting record daily rises, and public-health authorities are continuing to express concern. All of this generates additional worries about the U.S. economy.

“This could necessitate further stimulus measures by the U.S. government and U.S. Federal Reserve, which would continue the breath-taking currency debasement that is the result of expanding central-bank liquidity and national debt,” said Carsten Fritsch, analyst with Commerzbank. “This is evident not only in the exponential increase of the Fed’s balance sheet, but also in the unprecedented growth of the money supply. In the U.S., the M1 money supply soared by 33% year-on-year in May – more steeply than at any time since recording of the data began more than 60 years ago.

“It is no surprise then that investors are seeking refuge in a store of value such as gold, and that gold ETFs are therefore registering substantial inflows.”

BMO pointed out that year-to-date ETF inflows of 691 metric tons are “already higher than the annual inflows in any recent year.”

Author: Allen Sykora

Source: Kitco: Gold futures nearing psychological $1,800-an-ounce level

Key U.S. indexes lost heavily in the past two days (as of Feb 25, 2020) on the rise in coronavirus cases outside China. Together, Apple (AAPL – Free Report) , Facebook (FB – Free Report) , Amazon (AMZN – Free Report) , Microsoft (MSFT – Free Report) and Google-parent Alphabet (GOOG – Free Report) L) lost more than $238 billion on Feb 24.

The S&P 500 information technology sector has fallen 9.3% since Thursday’s close, wider than the 7.3% decline of the broader index. It is to be noted that technology shares held the key to the stupendous market rally of the past few months. Now, growing coronavirus concerns have battered the sector probably on fears that these stocks are overvalued.

Also, renewed global growth fears are hurting this high-growth sector. If this was not enough, Apple has already warned that it might not meet its guidance revenues for the March quarter due to the outbreak as it has considerable exposure to China

Should You Buy Tech ETFs on Sale?

Goldman appears bullish on tech stocks. It said that though investor capital has been most concentrated on FAAMG (Facebook, Amazon, Apple, Microsoft and Google-parent Alphabet) in 20 years, events like the dot-com bubble burst are less likely to recur.

Goldman pointed out that the top five tech stocks of the S&P 500 index are way cheaper (trading at a P/E ratio of 30x) now than the top ones of the dot-com bubble time in 2000-2001 (when top five stocks were trading at a P/E of 47X). Notably, the five major stocks of 2000 were Microsoft, Cisco (CSCO – Free Report) , General Electric (GE – Free Report) , Intel (INTC – Free Report) , and ExxonMobil (XOM – Free Report) .

“Lower growth expectations, higher reinvestment, and lower valuations” will continue to drive tech stocks in the coming days, per Goldman Sachs. Big Tech companies boast three-year growth investment ratios of 48% compared with the S&P 500’s 21%, as pointed out by Goldman Sachs.

Tech companies are cash-rich. As of fourth-quarter 2019, cash, cash equivalents and marketable securities stood at around $452.5 billion. Per an article published on BlackRock, “exceptional profitability has led to exceptional cash-flow generation, much of which is returned to shareholders in the form of buybacks”

From the price/cash flow (P/CF) angle, the tech sector is cheaper than the S&P 500. Investors should also note that the P/CF ratio of the computer and technology market now stands at 13.83x against the S&P 500 Composite Market ETF’s P/CF of 17.9x.

There are more reasons to be enthusiastic about the sector. In the dotcom bubble era, the tech sector’s P/CF was 31.60x versus 13.83x at the current level. In 2001 and 2002, the bubble burst, leading to a bear market for equities. But then also, the tech sector’s P/CF was higher than what it is now.

Per the Earnings Trends issued on Feb 19, about 93.5% of the technology sector of the S&P 500 reported earnings. Bottom line rose 6.3% on 5.8% higher revenues. About 84.7% beating EPS estimates and an 88.1% beating revenue estimates.

Against this backdrop, we highlight a few tech ETFs that could be bought on sale.

Technology Select Sector SPDR ETF (XLK – Free Report) : Zacks Rank #1 (Strong Buy)

iShares Expanded Tech-Software Sector ETF IGV: Zacks Rank #1

Vanguard Information Technology ETF (VGT – Free Report) : Zacks Rank #1

Fidelity MSCI Information Technology Index ETF (FTEC – Free Report) : Zacks Rank #1

iShares U.S. Technology ETF IYW: Zacks Rank #1

Author: Sanghamitra Saha

Source: Zacks: Forget Virus Scare, Buy Tech ETFs on the Dip

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