The S&P 500 closed out the second quarter of 2017 on a mixed note, with some fierce sector rotation bringing about volatility that rattled investor???s nerves.
As of June 30, the S&P 500 is up 8.34% year to date. Growth stocks were swept up in last week???s correction in technology stocks.
Interestingly, of the high-profile tech stocks that have reported second-quarter earnings, the results have come in above forecasts, coupled with strong forward guidance. In the past few weeks, Adobe Systems (ADBE), Autodesk (ADSK), Red Hat (RHT), Oracle (ORCL) and Micron Technology (MU) all exceeded analyst estimates.
While there is clearly some short-term rotation into financials, it is my view that as more technology stocks announce better-than-expected sales and earnings starting in mid-July, the tech sector should firm up. Sparking the tech sell-off was the European Union???s announcement that it imposed a $2.7 billion fine on Google. That triggered algorithmic trading and high-frequency-trading-related sell programs around the globe that account for about 70% of total trading volume in today???s U.S. equity markets.
It must be noted that when technology stocks undergo correction, that money is not leaving the stock market. It is just being reshuffled to other industry groups, such as the biotech, financial and industrial sectors. These rotational corrections are actually quite constructive.
The underpinnings of the bullish trend for dividend-paying stocks remain strong and have improved during the second quarter. The S&P 500 dividend payout ratio in the second quarter remained at about 50%, or $400 billion, while stock buybacks were $508.1 billion. The S&P 500???s operating earnings were $958.1 billion in the first quarter, so 94.8% of these operating earnings were diverted to dividends and stock buybacks. Corporate America remains highly committed to maintaining high dividend payouts and strong stock buyback activity.
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