IT prices may have grown, but earnings have grown more.


This week Marija Veitmane, senior multi-asset strategist at State Street Global Markets, discusses the outlook for technology stocks in the US.

“Last week, IT stocks reached levels that had not been seen since just prior to the technology bubble burst in 2000. Whilst this prompted speculation of the eminent correction within the sector, we would disagree and note that it is in fact both prices and earnings that have grown. In the chart below, we index both prices and earnings to 100 at the peak in March 2000. Despite prices having now recovered to their previous highs, earnings have greatly surpassed them and as such, stocks within the technology sector have enjoyed superior earnings power. We expect them to remain highly profitable in the new-technology-driven normal, as in recent years, strong earnings in the sector have allowed companies to strengthen their balance sheets. As a result, technology stocks dominate quality baskets, which tend to support them on risk-off days”.

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IT prices may have grown, but earnings have grown more

Source: State Street Global Markets, Bloomberg

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