Trends

XLK Still Offers A Buying Opportunity

Trending 1 year ago
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Bull and carnivore market

Kameleon007

The Technology Select Sector SPDR ETF (NYSEARCA:XLK) is expected to emergence further amid a astonishment displacement successful nan macroeconomic outlook. Strong labour marketplace information and a accordant driblet successful ostentation person reduced nan likelihood of an contiguous economical downturn and accrued nan chances of a soft landing. Moreover, robust fourth-quarter net allayed concerns astir an impending net recession. In summation to basal factors, method indicators for illustration liquidity and momentum besides constituent to nan hold of an upside trend. Therefore, those who missed a awesome buying opportunity past twelvemonth tin still put successful tech stocks and ETFs for illustration XLK to return advantage of imaginable gains.

Technology Stocks 2023 Outlook

Despite a pessimistic outlook, 2023 is shaping retired to beryllium a bully twelvemonth for tech stocks. In October 2022, I predicted a imaginable rally successful 2023 and suggested investors bargain undervalued exertion stocks and ETFs for illustration XLK. My prediction proved correct arsenic nan Technology Select Sector SPDR Fund has now entered nan bull marketplace territory aft rising complete 20% from its 2022 lows. The money has gained astir 13% twelvemonth to date.

XLK Price Change

XLK Price Change (Seeking Alpha)

Tech stocks still person a important upside, truthful investors who missed a awesome buying opportunity tin still acquisition them. I deliberation nan debased has already been reached for tech stocks, and nan existent uptrend is not a carnivore marketplace rally. However, this does not connote that investors will acquisition a v-shaped betterment successful 2023 because location are still galore challenges opinionated successful nan measurement of nan improvement of a beardown bullish trend. Among nan obstacles are nan impending recession, high-interest rates, and firm profits. Nevertheless, an contiguous slump is improbable successful nan coming months; instead, these risks would only summation volatility for immoderate time. The consequence of an contiguous economical downturn and terrible recession successful 2023 has decreased owed to nan ongoing spot of nan labour marketplace and indications of accrued business activity. The US added 517,000 jobs past month, and nan unemployment complaint decreased to 3.4%, nan lowest level successful 53 years.

Q1 US GDP Forecast

Q1 US GDP Forecast (Federal Reserve Banks of Atlanta)

A important upward revision to nan GDP forecast for nan first 4th besides reflects nan beardown economical conditions. The Federal Reserve Bank of Atlanta increased its outlook for first-quarter GDP maturation from 0.7% to 2.5%, which is simply a important improvement. JPMorgan (JPM) besides raised its first-quarter maturation forecast from 1% to 2%, while Goldman Sachs cut nan likelihood of a recession to 25% from 35% and expressed greater assurance successful a soft landing and debased downside equity consequence successful nan adjacent term. Overall, nan outlook for exertion stocks successful 2023 appears affirmative because stronger economical conditions would promote tech sector's description potential.

Tech Earnings Support XLK's Upside Potential

Q4 Earnings

Q4 Earnings (FactSet.com)

Along pinch nan betterment successful nan economy, higher-than-expected fourth-quarter net greatly accrued investor confidence. The resilient financial capacity of nan hard-hit exertion sector, successful particular, amazed investors. Despite Apple (AAPL) falling short of expectations, nan accusation exertion assemblage was nan champion performer successful nan 4th quarter, pinch 79% of companies exceeding net forecasts. The precocious percent of exertion companies beating forecasts reflects nan sector's beardown capacity arsenic a full and offers much impervious that macroeconomic conditions are not arsenic bad arsenic galore thought they would beryllium six months ago.

Interestingly, Apple's shares person besides held up good contempt weaker-than-expected results because investors person ignored caller capacity successful favour of promising early fundamentals. Microsoft (MSFT), nan second-largest tech stock, exceeded some nan gross and net forecasts for nan December quarter, and it anticipates posting affirmative year-over-year maturation successful 2023 and double-digit maturation successful nan pursuing year. Meanwhile, costs exertion companies specified arsenic Visa (V) and Mastercard (MA) are expected to spot double-digit net maturation successful 2023. Chip exertion patient Broadcom (AVGO) besides exceeded net expectations, pinch gross expanding 21% twelvemonth complete year. Cisco (CSCO), a awesome networking company, besides exceeded expectations for nan December quarter, and anticipates gross to summation by betwixt 11% and 13% twelvemonth complete twelvemonth successful nan March 4th compared to nan analysts' maturation forecast of 5.8%. The institution has accrued its full-year net outlook to betwixt $3.73 and $3.78 per stock from its erstwhile scope of $3.51 to $3.58 per share.

Valuations and Quant Ratings

Tech Sector Forward PE

Tech Sector Forward PE (Yardeni.com)

Although nan guardant price-to-earnings ratio of tech stocks has risen owed to a beardown stock value rally complete nan past 2 months, nan beardown net maturation inclination whitethorn support valuations and supply much room for value growth. Optimistic economical projections propose that tech stocks whitethorn nutrient amended financial results successful 2023 than galore had anticipated a fewer months ago. As a result, nan stock value could person much room to summation without importantly changing nan guardant PE ratio.

Quant Ratings

Quant Ratings (Seeking Alpha)

The Technology Select Sector SPDR ETF earned a bargain standing pinch a quant people of 4.45. With nan objection of nan consequence factor, nan ETF received precocious grades connected nan different 4 important factors. In particular, nan ETF received A+ grades connected momentum and liquidity, 2 important factors to gauge early value movement. A precocious people connected momentum indicates a higher likelihood of an upward trend. I deliberation nan existent uptrend is good established because investors' perceptions astir tech stocks statesman to alteration successful consequence to reports of economical stability. A positive people connected nan liquidity facet indicates accrued trading activity and investor interest. Moreover, a precocious liquidity people increases nan likelihood of a long-lasting value upside.

In Conclusion

The Technology Select Sector SPDR ETF is 1 of nan champion choices to thrust nan imaginable rally successful tech stocks. This is because XLK offers broader sum of nan tech sector, while its precocious beta would thief investors make loftier returns than different maturation categories. The downside consequence appears to beryllium constricted from present successful my sentiment because beardown economical information has reduced nan likelihood of a recession and a difficult landing.

This article was written by

Komal Sarwar floor plan picture

Komal has a beardown knowing of and passion for finance. She has worked for world clients for galore years connected respective projects related to nan banal marketplace and equity research. Komal likes to find undervalued stocks pinch beardown business models and semipermanent maturation trends.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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