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4 Tech Stocks to Pick as the Sector Drives Market Rally in Q3
Anirudha Bhagat
6 min read

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The U.S. stock market rallied in the third quarter as investors shrugged off worries about the rising coronavirus cases and rejoiced on the economic reopening efforts. With a gain of 11%, the tech-laden Nasdaq Composite index rallied the highest, followed by the S&P 500 and Dow Jones appreciating 8.5% and 7.6%, respectively.

Notably, the stock market has been in a recovery mode since April after bottoming out in late-March due to the pessimism surrounding the pandemic. The year-to-date (YTD) loss of Dow Jones has contracted to 3% from 23.2% as of Mar 31. The Nasdaq Composite and the S&P 500 indexes’ YTD return have even turned to +23.4% and +3.6%, respectively, from -14.2% and -1.9% as of Mar 31.

Investors are hoping that the worst of the pandemic is almost over and the economy will swing back to a recovery mode on the government’s easing restrictions. Optimism over a potential vaccine for COVID-19, along with an uptick in economic activities and an improving job market, has also reinstated investor confidence.

Tech Sector Leads Market Recovery

The technology sector has played a key role in the quicker recovery of the stock market. In the September-end quarter, the Technology Select Sector SPDR (XLK), which tracks an index of the S&P 500 technology stocks, has rallied 11.7%. Moreover, the ETF has a positive year-to-date return of 25.4%, outperforming the gains of all three major U.S. indices.

The technology sector has been strongly resilient to the negative impact of the pandemic-induced disruptions, aided by advanced technologies, including Artificial Intelligence (AI), Machine Learning (ML), Augmented Reality (AR), cloud computing, blockchain and robotics.

The adoption rate of Internet-based services and apps has been increasing rapidly as people are compelled to stay indoors. Moreover, the global work-from-home wave is bolstering demand for advanced technology-based virtual meetings and conference tools.

Additionally, the work-and-learn-from-home necessity has propelled demand for PCs, notebooks, peripheral accessories, and cloud storage. All these, in turn, are fueling growth for high-speed Internet services.

Moreover, the rising demand for robust communication networks is another positive. Further, the growing proliferation of AI technology, and cloud computing products and services in managing this pandemic situation is a tailwind. All these trends are stoking demand for semiconductor chips.

In addition, the long-term growth prospects of tech companies look promising owing to the continued digital transformations. The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur further growth. Moreover, blockchain, IoT, autonomous vehicles, AR/VR and wearables offer significant growth opportunities.

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