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Technology is the second-worst-performing sector in the S&P 500 in the last week, with names such as Applied Materials, Nvidia, Adobe and PayPal among the group’s biggest losers in that time. Here’s what three market watchers said about tech stocks’ next move:
- Timothy Lesko, principal and partner at Granite Investment Advisors, said the recent downside isn’t all due to rising interest rates and that older legacy technology names may be better buys at this juncture. “I think technology companies aren’t unique in their sensitivity to interest rates, it’s just simply a lot of the go-go-growth companies have been living off a period of really low interest rates. So as cost of capital starts to matter and future earnings prospects matter, then rates will weigh on them. That really bodes well for the older, cheaper tech,” Lesko said.
- Kenny Polcari, managing director O’Neil Securities, said, “I do not think, necessarily, it’s the beginning of a much larger breakdown. I think the broader market feels better; tech is going to come under pressure as people use it to reallocate cash.”
- Elizabeth Harrow, director of digital content at Schaeffer’s Investment Research, said older technology names such as Microsoft and Cisco look relatively strong here. “There’s a lot of focus on the FANG names like Facebook and Netflix, but the underperformance in those names isn’t new. It’s been going on for months, for some of those names.”
Bottom line: Technology stocks have come under pressure as money has flown out of technology names with relatively high multiples, and older technology firms with cheaper valuations may be the better bet now.