Something tells us that a ‘Rally Cap’ is a long pointed cone you wear on your head. But whatever it looks like, Goldman Sachs’s America Tech team wants you to put one on.
Goldman Sachs: [Emphasis added]
Put on your rally caps
While back-to-school and holiday shopping drive consumer strength, a combination of budget flush and year-end incentives for sales personnel almost invariably boosts the enterprise. From a trading perspective, the year-end chase for performance by investors, a broad roll-forward of valuation frameworks to the next year, and other factors also likely contribute.
Over the past decade year-end rallies in Tech have delivered in every year except two (Exhibit 1). The bubble bursting in late 2000 and the financial crisis of late 2008 were the only events that overwhelmed year-end market strength over the past decade. The tech tape even mustered a significant rally to close 2001 post the market and business disruptions following the 9/11 tragedy. In our view, relative stability in macro headlines – even if just bouncing along the bottom – should be a good enough backdrop this year for a seasonal rally.
Great fundamental logic here — Tech almost always rallies at the end of the year, right?
The returns during year end tech rallies, historically, have indeed been strong however.
Tech year-end rallies have averaged 30% over the past 10 years, double the performance of the S&P 500 during the same period. On average, year-end rallies start on August 23, end on December 19, and last 118 calendar days. More recently (over the past five years), Tech rally outperformance has been 1.6X that of the S&P 500.
So put on your caps…
(Via Goldman Sachs, US Tech Strategy: Put on your rally caps, Derek R. Bingham, 17 September 2010)
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