As for inflation, technology is a sector that traditionally benefits from rising interest rates, making it an ideal play as the Fed continues to tighten monetary policy and as price pressure builds in various industries.
“You look at a sector where 90 percent of companies are increasing their margins — that’s attractive for longer-term profitability and future growth,” Bartolini said. “That points to some of these stocks being painted as quality.”
As a result, investors are flocking to technology.
Investors put $4.7 billion into ETFs that track technology in May alone, by far the most for any sector, part of a $10.2 billion influx for the year, also the most of any category, according to SSGA.
Tech has led a surge into cyclical stocks that benefit from a stronger economy.
“Technology is one of the best sectors against rising yields, not just recently but historically,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “People have latched onto it. Tech’s become the answer for everything. It’s the play for growth ideas, it’s the play for a solid fundamental growth story, and the play for rising interest rates.”
Should Trump “step in it,” Paulsen said, the tech sector is helping to provide some safety against the volatile spells the market has endured through the year.
Paulsen does worry about a “dotcom deja vu” playing out, a reference to the bubble that popped at the turn of the century when valuations skyrocketed for companies with little revenue stream as investors sought to get ahead of the internet business boom.
However, companies like the FAANGs — Facebook, Apple, Amazon, Netflix and Google parent Alphabet — all have strong earning capacity, though they are seeing seemingly stretched valuations. Netflix, for instance, trades at 100 times forward earnings and has a price-to-book ratio of 39.5, more than triple its peers, according to FactSet.
“A lot of companies back then had no earnings at all, and we don’t have that now. But certainly we have a number of names that are at pretty extreme valuations,” Paulsen said. “The bull is tech, the bear is getting lost. That might be correct, but it also smells like dotcom.”