This Sector Will Drive the Market for the Next Decade

It was just a few months ago that the technology sector stocks, specifically the momentum stocks, were getting bashed around and sold off by the stock market. 

Since then, the selling has subsided and we have seen a nice rebound in technology stocks to the point where the NASDAQ is the top gainer in the stock market with a 6.88% advance as of Monday. By contrast, blue chips are hurting, with the Dow Jones Industrial Average down 0.55%. 

What the stock market is suggesting to us is that the appetite for risk and higher-beta stocks continues to be prevalent as investors seek the potential for higher gains. 

During the past five years of the stock market advance, technology has been one of my top areas for finding a growth investment opportunity. (Health care is another.) This remains my view. 

The caveat I’d add, however, is that I would continue to be very careful when buying or trading social media stocks, as the inherent risk continues to be quite high. 

I suggest continuing to focus on the Internet sector, as this will remain the dominant area going forward over the next decade as technology advances. Here I’m talking about online retail along with the developers of software and solutions for companies. 

The benchmark NASDAQ stock market index is at its highest point in more than 13 years and is within 13.4% of its all-time high at just over 5,100. In hindsight, it’s amazing that it took this long to retrace the steps, but then the technology stock market was extremely overvalued and trading at insidious valuation levels back then. 

The chart of the NASDAQ shows the steady advance since the bottom in 2009 and the emergence from the Great Recession. 

 

Chart courtesy of www.StockCharts.com 

What I like about the rally over the last decade has been its steadiness. It’s true we have seen some crazy surges in the high momentum stocks, but it is nowhere close to what we saw in 2000 when the stock market was running on high octane. 

My only concern is the relatively lighter trading volume, but this likely has more to do with overall fear than disinterest. Investor sentiment on the NASDAQ stock market is currently neutral. 

Technology, in my view, will continue to drive the stock market in the decades ahead. The stock market rewards innovation, so it makes sense to be here. Areas at the top of my radar include mobility, Internet services, and social media. 

Besides playing the big-name technology plays, you can also play technology exchange-traded funds (ETFs) via the Technology Select Sector SPDR ETF (NYSEArca/XLK). This ETF holds the major technology companies, including Apple Inc. (NASDAQ/AAPL), Google Inc. (NASDAQ/GOOG), and Microsoft Corporation (NASDAQ/MSFT). If you are seeking added risk, you could take a look at an ETF like the PowerShares S&P SmallCap Information Technology ETF (NASDAQ/PSCT).