If you talked to portfolio managers at any time in 2009, chances were good that they would extol the virtues of technology stocks. The information technology sector of the Standard & Poor’s index of 500 stocks rocketed 59 percent higher last year, beating every other sector and doubling the broad index’s 23.5 percent advance in 2009.
How quickly fashions change on Wall Street. A month into 2010, tech is down 8.2 percent, more than any sector but telecommunications, itself off 8.9 percent this year. The S&P 500 has dropped 2.3 percent.
The tech sector has lost steam despite good news on both the U.S. economy — such as a 5.7 percent rise in gross domestic product last quarter — and from technology companies themselves.
On Jan. 29, for example, tech heavyweight Microsoft reported earnings of 74 percent a share, 15 percent more than analyst predictions tallied by Bloomberg. Yet the results merely deepened Microsoft’s stock decline this year. After rising 57 percent in 2009, Microsoft shares in the new year have fallen 7 percent.
The tech sell-off has been broad. The Nasdaq 100-stock index includes large-cap tech stocks such as Microsoft, along with Apple, which is down 8.8 percent this year; Amazon.com, down 13.9 percent; Qualcomm, off 15.3 percent; and Google, which has fallen 14.6 percent this year. Only 18 Nasdaq 100 members are in positive territory in 2010.
Time To Rebalance Portfolios
Conversations with stock-fund managers suggest several reasons why tech stocks are having a tough year.
First come seasonal factors. In a new year, investors tend to rebalance their portfolios. After tech’s great run in 2009, it’s likely that many managers need to sell tech stocks to return their portfolios to their preferred sector allocation, notes Sean Kraus, chief investment officer at CitizensTrust.
Experienced traders have come to expect good results from tech companies…