Search

Technology Sector is Important

We often speak of the importance of the technology sector in our economic expansion since the last recession. We still believe that we are in the early innings of a technology revolution that will change so many things. There is conversation about robots, driverless cars, flights to space, artificial intelligence, and so many other innovations now, that they have become common and believable. We all remember watching the Jetsons cartoon and thinking how the technology looked interesting, but we never imagined it would be possible, so soon. For the economy to keep expanding we must have this sector lead, which is why we are strong believers in this sector. Of course, the technology sector is also the largest portion of the S&P 500.


If we look at the 10-year chart below, there is a comparison between the technology sector and the S&P 500. We can clearly see that the sell-off during the dotcom bubble was valid as many of those companies had paper wealth with no real sales and revenue. This second round of technological change has significant innovation, and actual solid growth and revenue. The largest tech companies are now the most valuable companies (Microsoft, Apple, Amazon, Google and Facebook). This path will continue forward. As the chart shows, the latest push in technology is surging the market higher, but also pushing our economic expansion further. Its not just tech stocks, but all companies in many industries must keep adapting to new technology or they will be left behind. Sure, you can have companies limit their tech expansion, in difficult periods, but technology is not going away. And especially with a large group of millennials that are changing the way they shop (Amazon), eat, communicate, and how they live. We have seen the brick-and-mortar space decimated as thousands of stores close annually. The mall is now being re-envisioned as a different space, whether its for educating children or other new ideas, but not so much for shopping. Amazon will continue to disrupt.


Of course, recently we are hearing of the U.S. government looking to regulate or monitor these large powerful tech companies, but let’s say in the worst-case scenario that some of them were forced to break up, it would create even more shareholder value. The parts of these companies are growth and profit machines. But in the end, let’s face it, do we really want to restrict the growth of our strongest companies, as China is seeking to be a global leader in technology, and especially in 5G growth, by 2025. Part of the trade discussions is technology, whether its Huawei leadership in 5G, or the theft of our technology by China. We expect these to be key points that could unravel the trade discussions.


Technology sector vs. S&P 500 (10-year chart)

Source: KOYFIN & AETOLIA CAPITAL (as of 9/6/19)


If you have any questions or comments, please contact me.


Regards,

John Anagnos

Managing Principal

Chief Investment Officer

AETOLIA CAPITAL LLC

3828 Kennett Pike

Suite 212

Greenville, DE 19807

Office: 302-543-4446 Fax: 302-510-4166

john.anagnos@aetoliacapital.com

www.aetoliacapital.com


Disclaimer

Aetolia Capital, LLC (“Aetolia”) is a Registered Investment Advisor ("RIA") registered with and resident of the State of Delaware. Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Aetolia renders individualized responses to persons in a particular state only after complying with the state's regulatory requirements, or pursuant to an applicable state exemption or exclusion.


This communication is intended to provide general information about Aetolia. It is not intended to offer investment advice, or to offer or recommend the purchase or sale of any securities or investment product. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement, and shall be subject to the terms and conditions therein. Information regarding investment products and services are provided solely to inform the reader about our investment philosophy, our strategies and to be able to contact us for further information. Please do not forward or replicate without our permission.


MARKET INSIGHT