This week we feature the QES Team’s quant models. Technology-Adaptive LEAP Insight Alpha–High Capacity (TALIA) is an adaptation of the flagship LEAP model and is geared towards long-only managers. It is designed to identify outperforming stocks over the next year. Factors underlying the LEAP model include both traditional market anomalies and unconventional Big Data. TALIA covers around 2,500 TMT stocks globally by combining our general-purpose LEAP model, alternative data-based ADS signal, and our TMT Sector-Specific ModelHC (SSM-HC). The TALIA-HC model delivers superior performance in all regions of the world.
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After last week’s pause, tech outperformance rebounded. Our Wolfe Tech Universe was up 2.8% vs the S&P 500’s 2.1% increase the past five days. Semis jumped by 7.0% while software lagged at down 0.2% for the week (p2). Top stocks were STMicroelectronics(+17%), NetEase (+16%), and CommScope (+14%). Laggards included Zscaler (-11%), Shopify (-5%), and PagSeguro (-3%). Tech remains overbought with no names posting an RSI below 30.
What is Apple? Is it a consumer electronics, a luxury goods, or now a services company? Apple calls itself a personal technology company. We like Neil Cybart’s view that it is a tools vendor, creating technology tools that help consumers get jobs done while enjoying the experience.
Compared to a year ago when the XLK was 17% lower, tech’s overall P/E is fairly similar. Software (+13%) and Services (+6%) multiples have expanded while Internet (-10%) and Semis (-2%) contracted and IT Hardware stayed the same. Earnings have moved up at about the same rate as stock prices.
The first quarter was unusually strong as the market recovered from its 4Q/18 decline. Our Wolfe Tech Universe rose by 22%, well ahead of the S&P 500’s 13% increase. Every sector outperformed, led by Internet (+27%) and Software (+24%). Our IT Hardware group lagged at +19%.
Last week we asked if Friday’s weakness was the beginning of a correction. So far it is not though our Wolfe Tech Universe +0.9% did lag the S&P 500’s +1.2% increase the past five days. Services at +2.4% doubled any other sector while Semis was the only declining segment (p2). Top stocks were Wirecard (+13%), Blackberry (+11%), and Lyft (+9%). Laggards included ST Micro (-9%), Infineon (-8%), and Nutanix (-7%). Tech skews overbought—especially Software and Services—with no names oversold at an RSI < 30. Apple shorts are covering with Nvidia shorts up (p4).
Our auto team has examined ride-sharing (What You Need to Know About Ride-Share). They conclude that the Mobility on Demand market is likely limited to dense urban areas until costs come down.
We hosted Larry Birnbaum, professor of computer science at Northwestern and co-founder of Narrative Science. His research focus is in applied artificial intelligence, natural language processing, social media analytics, and context search with application to media and journalism.
A history of leading tech market caps reflects substantial change—competitive advantage periods are short. IBM is close to falling off the list as PayPal, Broadcom, and Tata Consultancy close in.
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