The technology sector has outperformed the vast majority of sectors in recent years as investors have increasingly piled into long-term growth opportunities to the detriment of a number of value or income-focused opportunities in other sectors.
On Wednesday, as the U.S. unveiled its new tax bill, investors considering the impact a lower corporate tax rate is expected to have on various sectors have begun taking profits from the tech sector and reinvesting said profits into sectors which have been traditionally hit harder with higher average tax rates.
With the tech sector overall experiencing one of the lowest average tax rates among S&P 500 sectors, the transfer of investment across sectors based on tax rates is entirely understandable, and investors will now be assessing whether this trend is likely to continue or if Wednesday's trading session represents a short-term buying opportunity.
While income tax rates have a large impact for a number of industries in terms of future earnings (and perhaps less so in the tech sector), the selloff in tech stocks as a means of portfolio re balancing could, and perhaps should, be looked at as a potential buying opportunity for investors looking for long-term growth moving forward.
With the "FANG" group of stocks (Facebook, Apple, Netflix and Google/Alphabet) carrying a lower effective tax rate than what has been proposed by congress, the ability of these companies to potentially lower their tax rate as a result of the proposed tax changes remains questionable; that said, the tax proposal does not change the long-term business case for investing in FANG stocks, making this near-term selloff a potential opportunity for aggressive investors.
Invest wisely, my friends.
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