The Trump administration's looming health reform fiasco, draconian budget blueprint, and foreign affairs missteps are roiling the markets, but one sector appears to have seized sustainable momentum: technology.
Here's a look at the forces driving tech higher and the profitable opportunities emerging among tech companies of all sizes, regardless of the market's excessive valuations and myriad political risks.
The stock market closed on Friday with a gain of 0.2% for the week, although it didn't top its record high from the start of March. The clear outperformer was the tech-heavy Nasdaq, which closed +0.7%, rising near its early-March high to hover near another record close. The Nasdaq is now up 9.6% year to date, versus the S&P 500's (SPY - Get Report) YTD gain of 6.2%.
One sector that hasn't fared well over the past week is health care. The Republican alternative to Obamacare, inevitably dubbed "Trumpcare," is a toxic stew of half-measures that no one finds palatable.
The consensus in both parties is that the Obamacare replacement bill is dead on arrival, as an increasing number of GOP senators indicate they will vote "no." The political stalemate over health care has dampened enthusiasm for health stocks, with the benchmark Health Care Select Sector SPDR Fund (XLV - Get Report) falling 1.08% over the past five days.
Trump also has unnerved global investors by alienating America's key allies of Britain and Germany.
The president continues to infuriate the Brits by repeating groundless claims that Britain's intelligence services spied on him at the behest of Obama. Meanwhile, at a White House meeting on Friday, Trump's anti-EU stance was on full display as he treated German Chancellor Angela Merkel with insulting disdain to the point where he refused to shake her hand.
In case anyone has forgotten, Britain is America's most important strategic partner and Germany is the largest economy in Europe.
But through it all, technology paints a rosy investment picture. One tailwind is Trump's promise to make it easier for tech firms to repatriate cash hoards that are parked overseas. Tech companies are likely to use this cash to fund merger and acquisition activity, to fuel organic growth and innovation.
In a sign of the heightened M&A to come, Intel (INTC - Get Report) announced on Monday that it was making a big bet on self-driving vehicles by acquiring Mobileye (MBLY) for $15.30 billion in cash, paying a 34% premium to Mobileye's share price from the previous session. Mobileye is a small Israeli company that creates vision systems for cars and trucks.
In the week ahead, keep an eye on Silicon Valley giants with deep pockets. They increasingly need to find new avenues of growth by gobbling up smaller, entrepreneurial firms in such hot areas as autonomous cars, the Internet of Things, and the cloud.
Indeed, largely driven by cloud growth, Oracle (ORCL - Get Report) on Wednesday delivered an earnings beat that sent shares rocketing higher. The tech giant's third-quarter 2017 earnings per share of 63 cents and revenue of $9.27 billion handily exceeded the consensus estimate of 57 cents and $9.24 billion, respectively.
Another positive for technology is the expected increase this year in IT spending, as cash-rich corporations make deferred upgrades. According to research firm Gartner, worldwide IT spending is projected to total $3.5 trillion in 2017, a year-over-year increase of 2.7%. Historically, IT spending is positively correlated with stock performance. One fast-growing segment is cyber security, as hacking incidents continue to mount.
The key takeaway: ignore the dreariness of today's politics and focus on the fundamentals. And right now, several trends strongly favor technology.
Notable tech company earnings on the calendar in the week ahead: Accenture (ACN - Get Report) and Upland Software (UPLD - Get Report) (Thursday). Economic reports: Existing Home Sales (Wednesday); Jobless Claims, New Home Sales, and Bloomberg Consumer Comfort Index (Thursday); Durable Goods Orders and Baker-Hughes (BHI) rig count (Friday).
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