Global Macro: Strong Tech Stocks a Bullish Sign

NEW YORK (TheStreet) --Renewed leadership of PowerShares QQQ (QQQ) over SPDR S&P 500 (SPY) the past few weeks indicates strength in U.S. equities overall.

High-beta companies found on the Nasdaq tend to lead the market higher when sentiment is elevated. The strength of tech stocks is a bullish sign that investors believe in the economy.

Last year, the prevailing thought was that stimulus cuts by the Federal Reserve would push equities lower. Instead, U.S. equities rallied in December when the Fed began to reduce its monthly bond purchases as investors took the the central bank's move as a sign that policymakers were confident in the direction of the U.S. economy.

But then anxiety over emerging markets because of the prospects of higher U.S. interest rates and slowing growth in China led to broad selling across global assets.

There was widespread fear that economies in countries such as Turkey and India would crumble and their currencies would be devalued, but quick action from foreign central banks helped fend off the attacks.

This week, a solid bottom has formed under global equity markets, as Chinese data outperformed expectations, and Janet Yellen, the new Fed chair, calmed the market by saying she wouldn't change U.S. monetary policy.

China's trade balance came in well above estimates on Tuesday night, indicating that output was still strong in China's manufacturing and services sectors. That led to a bid higher in emerging-market assets, as a majority of revenue generated by developing countries comes from Chinese demand.

Meanwhile, Yellen spoke in front of the U.S. House of Representatives on Tuesday afternoon and reassured that she was sticking to the Fed's current path of ending the stimulus.

The string of positive news should give investors even more reason to allocate funds toward riskier assets, such as tech stocks. If sentiment remains elevated, expect the rally in U.S. equities to continue and the market to reach record highs over the next few months.

QQQ ChartQQQ data by YCharts

At the time of publication, the author had no position in any of the funds mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. He takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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