My view on the overall market which can be summarized as "I don't know" has not changed. Instead I wanted to focus this morning's post on the technology sector. Technology has underperformed the broader market since mid-April for a number of reasons. The sector was over owned at the end of March, with the sector being the largest overweight for managers by far. Technology companies generate a lot of their revenue overseas which exposes them to the strong US Dollar has and the weakening global economy. Tech companies do not generally pay large dividends and dividend paying stocks have been the investment of choice recently.
Many of the issues plaguing technology companies remain. But there is some evidence this morning that the woes may have been priced in to the more beaten down stocks. EMC missed on EPS but is trading 6.5% higher this morning. Intel had a big miss and lowered its outlook yet the shares are looking flat. Checkpoint missed and lowered their outlook and are trading higher. Normally big misses by three tech companies would mean much lower prices.
I still believe that tech is over owned but not nearly to the extent it was a few months ago. The issue of overseas earning seems priced in as shown by this mornings reactions to poor numbers. Unfortunately, the issue of capital allocation remains. These giant cash hordes are coming into focus as a result of investors preference for dividends. In mid-April I wrote that technology was over owned and set to under perform. I now think that technology will perform more inline with the market.