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Information Technology
| The Information Technology Sector covers the following general areas: firstly, Technology Software & Services, including companies that primarily develop software in various fields such as the Internet, applications, systems, databases management and/or home entertainment, and companies that provide information technology consulting and services, as well as data processing and outsourced services; secondly Technology Hardware & Equipment, including manufacturers and distributors of communications equipment, computers & peripherals, electronic equipment and related instruments; and thirdly, Semiconductors & Semiconductor Equipment Manufacturers. |
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Actual market weightings for each sector are based on the S&P 1500.
**The Market Analysis, Research and Education (MARE) group is a unit of Fidelity Management & Research LLC.
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Sector Commentary from Standard & Poor's
11/15/2009
S&P Equity Research recommends marketweighting the S&P Information Technology sector. Year to date through October 23, the S&P Information Technology Index, which represented 18.9% of the S&P 500 Index, was up 49.5%, compared to a 19.5% increase for the 500. In 2008, this sector index fell 43.7%, versus a 38.5% drop for the 500. There are 15 sub-industry indices in this sector, with Computer Hardware being the largest at 27.4% of the sector's market value.
S&P equity analysts have a neutral fundamental outlook on the IT sector. Enterprises continue to spend on technology as budgets are relatively lean and improving productivity remains a high priority in challenging times. In addition, increasing pent-up demand among both consumers and enterprises has created the need for IT replenishment, in our view. Nonetheless, we think the strength of any global economic recovery is an ongoing concern. The sector index is projected to post a 30% increase in 2010 operating EPS, versus a 34% advance seen for the S&P 500. The sector trades at a P/E on estimated 2010 EPS of 16.6X, versus 14.6X for the S&P 500. Its P/E to projected five-year EPS growth rate of 1.3X is below the broader market's PEG of 1.5X. This sector's marketweighted S&P STARS average of 3.6 (out of 5.0) is just below the average of 3.7 for the S&P 500.
The S&P GICS Information Technology Index continues its strong advance; however, prices have run up to an area of strong overhead supply that starts at 340 and runs all the way up to the 400 level. While the sector could continue to push higher, we think the slope of the advance will flatten as prices face this increased supply of stock. We believe there is also the possibility of a pullback or lengthy consolidation at any time. The layer of heavy resistance is from the key pivot lows in 2007 and twice in 2008 off of that 340 level. If prices pull back, there is plenty of technical support in the 300 to 320 zone. Relative performance versus the S&P 500 has fallen a bit since mid-July, but remains in an intermediate-term uptrend. Weekly momentum is overbought, and may be tracing out a bearish divergence. This also suggests to us that there could be a pause in the rally. We remain neutral on Technology from a technical perspective.
After strongly outpacing the S&P 500 since early March, we think increased valuations and overbought technical readings reduce the likelihood of continued outperformance.