Tech Investors Buy the Dip A Day After Stocks Get Routed

  • QQQ ETF calls are among most active in U.S. options market
  • FANG bouncing back after $60 billion market-cap wipeout
How to Trade the Tech Sector ETF

A broad-based selloff in U.S. tech stocks proved short-lived as investors used Wednesday’s rout as an opportunity to buy into this year’s best-performing sector.

The S&P 500 Information Technology Index jumped as much as 1.1 percent Thursday, one day after concern that the industry has the least to gain from a proposed tax overhaul drove its biggest drop in five months. The FANG cohort of tech megacaps, which on Wednesday lost $60 billion in combined market value, advanced as Facebook Inc. and Apple Inc. jumped at least 0.8 percent. 

Optimism is also showing in the options market, with calls on the largest exchange-traded fund tracking the Nasdaq 100 Index the third-most active contracts on U.S. exchanges.

Strategists from Evercore ISI’s Rich Ross to CMS Markets’ Michael McCarthy are among those who see Wednesday’s rout as a buying opportunity. A similar rotation out of tech to financials was “the best buying opportunity” at this time last year, Ross said. Since then, they’ve led gains in the market, doubling the S&P 500’s advance with a 39 percent rally.

Here’s what other strategists and portfolio managers are saying:

  • Matt Maley, a strategist at Miller Tabak + Co.:
    • “This would not necessarily mean the tech stocks will decline throughout December. Who is going to dump that group in a massive way and hurt their portfolio and their own 2017 performance? However, those ’previously lagging’ groups should attract a lot of the ’new money’ as it comes into the market.”
  • Matthew Litfin, portfolio manager of the Columbia Acorn Fund at Columbia Threadneedle Investments:
    • “It was a one day thing and it’s going away. Some would argue saying things bounce back a little, but I’m trying to say I actually see more volatility ahead as portfolio managers wrestle with where is leadership in the U.S. market going to be in 2018 and where are we going to get that outperformance from. With the rise that we’ve seen in technology in 2017, I think there’s going to be a lot of opportunity for portfolio managers to make their bets and starting from a lower valuation usually helps when figuring out where the pockets of outperformance will be.” 
  • Doug Cote, chief market strategist at Voya Investment Management (in an interview at Bloomberg’s New York headquarters):
    • “This is the beginning of a strong capex cycle and once it gets going, it goes on for years. And the biggest component of capital expenditures is technology. Not necessarily Facebook technology, but semiconductors and all along the spectrum. Manufacturing has gone digital but they constantly need robots and the like. Tech is volatile by nature but it’s buy the pullback. Tech is going to continue to run next year, and the next few years, because the capex cycle is just getting going.”
  • Matt Schreiber, president and chief investment strategist at WBI Investments:
    • “The tech offerings especially during this holiday season are exceptionally strong and if you’re looking to play that on a Microsoft and an Apple and some of the other component manufacturers down the line, that’s why you see a bit of a resurgence in tech because some of those largest tech names are also a consumer discretionary play as well, and a lot of folks are probably playing that space. The value has been consumer discretionary and I think you see that’s been the place where people are moving and tech has been a beneficiary of that.”
    Before it's here, it's on the Bloomberg Terminal.