Did you know that since 1990, the S&P 500 Index, which is based on the market capitalisations of 500 companies with common stock listed on the NYSE or NASDAQ, has climbed an average of 4.9 per cent in each and every quarter? However, it is perhaps more interesting to note that the technology sector performs best out of those with the broad gauge.
The sector rose nearly 80 per cent of the time with an average gain of 6.6 per cent. But why have tech shares traditionally thrived in Q4? And should those interested in spread betting through renowned providers like IG take advantage of this trend in the future?
Understanding the tech sector’s performance in Q4
According to Kensho, a data analytics platform for financial markets, the technology sector has managed to climb an average of 4.6 per cent since 1995. On top of that, it has risen 71 per cent of the time, which is equivalent to five out of every seven instances.
But why is this? Well, there are a few things that contribute to the tech sector’s performance in Q4, which are intrinsically linked to the time of year. First of all, technology has a habit of leading the way in up markets, with money managers shifting funds away from laggards and towards more profitable categories.
Secondly, if a company hasn’t invested any money in new technologies throughout the previous three quarters, they will soon do so before the year is over. This is a fairly common technique that strategists refer to as ‘budget flushing’.
Last, but not least, there is always a great deal of consumer interest in technology during the holidays. Because the public will be buying up smartphones, tablets, laptops, and any other gadget or device you can think of, the share price of technology companies will undoubtedly rise.
Knowing where and when to invest in the tech sector
Even though history has taught us that the growth of technology can potentially provide rich rewards during Q4, there is no guarantee of making money by looking at past performance. Any stock market move relating to technology requires an in-depth understanding of the current conditions as well as thorough knowledge about the sector itself.
After all, technology actually witnessed a sharp decline in Q3 of this year. In fact, the sector’s decline of 4.1 per cent was its worst performance since the fourth quarter of 2012. Therefore, things can change rapidly in a sector where companies are riding the crest of a wave one minute and filing for bankruptcy the next.
Even so, investors wanting to capitalise on this trend should look for growth stocks with appealing technical patterns. Examples right now include big names like Facebook and Amazon but also Palo Alto Networks, a next-generation security company that posted its biggest revenue rise in 10 quarters earlier this year.
Also, if you choose to spread bet on the technology sector, you can take a position on whether you think it will rise or fall without having to buy the underlying asset. This leveraged product is an extremely attractive option for various investors, as you can make your investment capital go further by putting down a small deposit in exchange for extensive market exposure.
