foxex: Buyers Remorse

Chart Advisor | Focus on the Price

Tuesday, January 07, 2020

1. Investors pause at high prices

2. Technology sector continues its surge

3. The next big thing in telecommunications

Market Moves

Bond and oil prices drifted lower, while gold prices rose higher. Stocks lost a little ground as buyers seemed to feel bad about paying such high prices for shares over the past few days. The S&P 500 index (SPX) closed slightly lower, along with the Russell 2000 small cap index (RUT) and the Dow Jones Industrial Index (DJI). Meanwhile the Nasdaq 100 index (NDX) closed essentially unchanged.

The chart below shows that investors have favored investing in iPath's Crude Oil Index ETN (OIL) and State Street's gold ETF (GLD) over the past few weeks. It is notable that this shift got underway well before the recent activity in the middle east appeared, implying that this move is driven by more than mere headlines.

Technology Sector Continues Its Surge

Though investors are certainly showing signs of nervousness going into 2020, they haven't stopped seeking investing opportunity over and above finding safe investments. This risk-on posture can be seen in the fact that the leading sector is still technology even after four completed trading sessions.

The chart below compares all of State Street's sector index ETFs for stocks in the technology (XLK), healthcare (XLV), finance (XLF), industrial (XLI), staples (XLP), consumer discretionary (XLY), basic materials (XLB), energy (XLE) and utility (XLU) sectors. The fact that the utility sector has not moved from its spot at the bottom of the stack and that technology remains on top indicates that no sector rotation has begun. In other words, despite the shrill nature of recent headlines, investors are not seriously worried about the current market climate.

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The Next Big Thing in Telecommunications

The topic of 5G technology in telecommunications has reached a fever pitch in some circles and investors are rushing to look for the companies that appear poised to deliver the best returns on these innovations. When you think about companies that would naturally benefit from this systemic upgrade, you might naturally expect that it would be carrier companies that would see the most significant new revenues, but that isn't where investors have put their money--at least not so far.

It's not news to anyone that Apple (AAPL) shares have done well, but the only explanation for the 35% rise in share price over the last quarter is the anticipation of a new 5G-driven upgrade cycle for iPhones. And yet as impressive as these gains have been for Apple, they are dwarfed by two other stocks from 5G-related technology companies: Skyworks Solutions (SWKS), and QORVO Incorporated (QRVO).

The chart below compares AAPL shares with the stock prices from these two companies. Investors will greatly anticipate the upcoming earnings season to determine whether these trends have reason to continue.

The Bottom Line

Though gold and oil prices have risen, the surge has not displaced technology stocks from the center stage of investors' interest. The technology sector remains strong after four sessions into 2020. 5G technology has similarly captured investor attention.