The U.S. tech sector has a healthy pulse, signaling solid earnings support and high odds of a continued uptrend in relative performance.
The Federal Reserve Bank of San Francisco’s Tech Pulse Index (TPI) is a coincident indicator that gauges the health of the IT sector. The TPI comprises tech investment, consumption, employment, production and shipments. The TPI is currently making fresh recovery highs, consistent with other measures of tech sector activity such as new order growth, hours worked and firming in our pricing power gauge, as shown in previous research.
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Following years of under-investment after the bursting of the tech bubble, pent-up tech demand is slowly being realized. Importantly, the government is finally shifting away from being a major drag on tech spending, providing an offset to the anticipated moderation in emerging markets demand. While any sustained strength in the U.S. dollar could eventually become problematic for this globally-exposed sector, cost structures are lean, reflecting the adoption of a profit margin preservation mindset in recent years.
Bottom Line: The S&P tech sector remains a core overweight.
