Think Tech Stocks Are In a Bubble? You Ain’t Seen Nothing Yet

Despite the pandemic, U.S. technology stocks are seen rising between 20% and 30% during the next leg of the bull market.
US stock market
Wall Street continues to defy fundamentals. Nowhere is this truer than in technology stocks. | Image: Bryan R. Smith / AFP
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  • Information technology stocks continue to set all-time highs.
  • The tech-laden Nasdaq Composite Index is up over 18% year-to-date. By comparison, the Dow Jones has declined over 8%.
  • Some analysts foresee another 12-to-18-month rally for technology stocks, which means new record highs are on the way.

Despite a deadly pandemic and Depression-era economic conditions, information technology stocks continue to set all-time highs. According to analysts, there’s little reason to believe the tech surge will slow down anytime soon. We may be in the early stages of another multi-year bubble.

Tech Stocks to Outperform

Technology’s leadership pace of the U.S. stock market will continue indefinitely, according to Brian Belski, chief investment strategy at BMO Capital Markets.

Speaking to The Wall Street Journal, Belski says technology companies will continue to outperform over the next 12 to 18 months. The software segment, which is led by companies like Microsoft (NASDAQ:MSFT) and Salesforce.com (NASDAQ:CRM), will be the biggest gainers.

In terms of how much growth is expected, Wedbush analyst Daniel Ives told clients to expect another 20% to 30% leg higher.

He adds:

While fears of a second wave and a soft macro will cause volatility over the coming months, especially with earnings season around the corner, we remain firmly bullish on tech for the rest of the year.

The Nasdaq Composite Index is coming off another record-setting week, climbing 4% over the five days. On Friday, the index broke above 10,600 for the first time, bringing its year-to-date return to a staggering 18.3%.

Nasdaq Composite Index
Tech stocks power the Nasdaq to a perfect V-shaped recovery – and multiple record highs in the process. | Chart: Yahoo Finance

By comparison, the Dow Jones Industrial Average has declined more than 8% in 2020, while the S&P 500 is off 1.4%.

The S&P 500’s information technology sector has surged 36.1% over the past 12 months, dwarfing all other major groups. The closely-related communication services segment is also up nearly 15% over the same period.

s&p 500 sectors
Information technology continues to do the heavy lifting. | Source: Fidelity

Earnings to Recover Faster Than Expected

Second-quarter earnings could be the rocket fuel that sends technology stocks and the broader market higher in the coming weeks. Earnings are now seen recovering much faster than early projections showed.

Wall Street analysts tend to underestimate quarterly earnings vastly. With the bar set so low, beating forecasts is expected.

Stronger than expected Q2 results will support equities for a while longer, strategist says:

Technology stocks that have thrived during the pandemic will likely have something positive to report. Brian Belski says tech-sector earnings are in line with levels seen before the 2009 bull market, which means further gains are likely.

Roughly a fifth of S&P 500 companies will report quarterly earnings this week.

Investors will also be keeping tabs on the latest economic data out of Washington. Reports on consumer prices, industrial production, housing starts, and initial jobless claims will be released. Non-governmental reports on consumer sentiment and housing market confidence are also scheduled for release.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com.

Josiah Wilmoth edited this article for CCN - Capital & Celeb News. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

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