Tech & Financials - Tough Trades
Technology shares and the financials have been tough to trade this year. Is it time to dip a toe – or will you just get burned?
Tech looks poised to end the year as one of the worst performing sectors in the S&P 500.
Just look at this chart of the Technology SPDR. Investors turned their back on the group as the financial crisis gripped the nation and the threat of a global slowdown grew ever more ominous.
However, it’s also widely believed that when the economy turns – tech spending will lead the way.
According to AltaVista Research, “S&P technology stocks carry a P/E ratio of just 11.4, which is nearly the same for the broader S&P 500. In the past shares have typically traded at a healthy premium to the market.”
Is it time to dip a toe?
“In the short run I think tech business will be shockingly bad, says celebrated short-seller,” Bill Fleckenstein. “Especially the numbers out of the semiconductor firms. Orders have stopped."
"But is it priced in?" he adds "That’s the question. I think it’s dangerous to be short and way too early to be long.”
“That’s not to say there aren’t some cheap names,” he adds. I think you wouldn't get hurt if you owned Microsoft but I don't see any reason to take a position in tech.”
It’s no secret that the financials are among the worst performing sectors this year. Take a look at this chart of the XLF and you can see they’re down well over 50% this year.
And earlier in the month Standard & Poor's downgraded the credit ratings of 11 top global banks. It cut Bank of America , JP Morgan Chase and Wells Fargo by one notch.
The agency cut its ratings on Citigroup, Morgan Stanley and Goldman Sachs each by two notches.
With so much bad news, is it time to own financials?
“It’s hard to ever feel good about owning a financial stock because of the accounting techniques,” adds Fleckenstein.
"Perhaps there will be a short term rally but I don’t think a sustainable long term advance will come until at least the second half of the year because there's unfinished business on the downside.”
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Trader disclosure: On Dec. 26th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Macke Owns (MSFT), (WMT), (TM), (SDS), (MCD); Pete Najarian Owns (UYG) And Is Short (UYG) Call; CIBC Gartman Index Owns Gold, Natural Gas; CIBC Gartman Index Is Short Crude Oil; CIBC Gartman Index Is Long The Grain Market; CIBC Gartman Index Is Long Hong Kong Shanghai Composite Stock Index; Citibank is a client of Dennis Gartman
Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (OFC), (DLR), (EXR), (IGE), (MAC), (DBC), (DBV), (SKT), (UA), (CLB); Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights