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Tech just had its best quarter since 1999. Traders look to one group for signs of what’s next

VIDEO4:4004:40
Tech wraps up its best quarter since 1999. What traders see ahead

Tech stocks are partying like it’s 1999.

As the broader market closed out its own record-breaking quarter on Tuesday — the Dow’s best since 1987 — the tech sector was reaching its own milestones.

The Technology Select Sector SPDR Fund (XLK) on Tuesday ended its best quarter since December 1999 and second-best on record, with a 30% gain since April 1.

Now, traders are looking to one corner of the space for signs of what’s next.

“We think we’re in the next tech boom. The last boom was in the late ’90s as the internet came online,” Todd Gordon, managing director at Ascent Wealth Partners, told CNBC’s “Trading Nation” on Tuesday.

With artificial intelligence, self-driving cars, 5G and other innovative industries just starting to expand, Gordon had his eye on one group at the center of them all: semiconductors.

The VanEck Vectors Semiconductor ETF (SMH), the second-largest chipmaker ETF on the market by assets, “has taken a bit of a pause” but is now starting to show strength relative to Invesco’s QQQ Trust (QQQ), the fund tracking the tech-heavy Nasdaq 100 index, Gordon said.

“We’ve just been kind of going sideways, and I think we’re about ready to [head] higher,” he said. “If we are in fact going to see rotation coming back into semis, I think that technology as a whole is where you want to be going forward. And hopefully we get other stocks coming back online, but stay with tech.”

Steve Chiavarone, a portfolio manager, equity strategist and vice president at Federated Hermes, said in the same interview that he believed tech would be “a long-term winner.”

“If you just take a step back and ask yourself, ‘Is the economy likely to have more semiconductor content three years from now than it is today,’ I think that is a very clear yes,” Chiavarone said. “So, we view semis as kind of a secular part of this thesis.”

“All the technological innovation is built around that technology,” he said. “It sits at the center of the trade war between the U.S. and China, and it’s increasingly becoming a protected industry as well. So, we think there’s opportunity there.”

Chiavarone also doubled down on his call that the world is in a “digital revolution” in which technologies such as “automation, artificial intelligence, internet of things, blockchain, [and] advanced internet” are on the rise.

“There’s a lot of disruptive companies on the smaller-cap side of tech that have become really evident as disruptors in this most recent pandemic,” he added. “The biggest names, the FAANGs, are certainly doing a tremendous job, but there’s a lot of great opportunity in the small-cap space as well.”

And even with comparisons to the early 2000s dot-com bubble abounding, Chiavarone says this time is different.

Back then, “you were trading at multiples over 50 times on the hint or the hope of earnings in the future,” he said. “Today, even with the sector running up the way it has, the multiple’s half that and earnings are robust now and likely to continue to be robust. So, we think it’s a much better fundamental story than it was 20 years ago and we continue to like the space.”

The XLK closed nearly 2% higher on Tuesday. The SMH ended trading almost 2.5% higher.

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Summary | 6 Annotations
Tech just had its best quarter since 1999. Traders look to one group for signs of what’s next
2020/07/01 20:16
Tech stocks are partying like it’s 1999.As the broader market closed out its own record-breaking quarter on Tuesday — the Dow’s best since 1987 — the tech sector was reaching its own milestones.
2020/07/01 20:16
“We think we’re in the next tech boom. The last boom was in the late ’90s as the internet came online,” Todd Gordon, managing director at Ascent Wealth Partners, told CNBC’s “Trading Nation” on Tuesday.
2020/07/01 20:16
With artificial intelligence, self-driving cars, 5G and other innovative industries just starting to expand
2020/07/01 20:16
I think that technology as a whole is where you want to be going forward
2020/07/01 20:16
Chiavarone also doubled down on his call that the world is in a “digital revolution” in which technologies such as “automation, artificial intelligence, internet of things, blockchain, [and] advanced internet” are on the rise.
2020/07/01 20:17