Sectors To Watch: Capex To Fuel Super Bull Market

| March 20, 2013 | 0 Comments

What’s the one thing the recovery from the Great Recession is lacking?

If you said job growth, you’re on the right track… the unemployment rate and other employment stats are some of the most widely talked about and are certainly disappointing.

But I’m talking about capex or capital expenditures. It’s the amount of money a company spends on physical assets like equipment, property, or buildings.  And more importantly, it’s the type of spending that fuels future growth.

And the reality is the amount of capex spending in the US still hasn’t recovered to pre-recession levels.  But it’s on the comeback trail…

In fact, it’s part of a typical progression we’ve seen over the last few years.

First companies restructured their balance sheets.  They shed debt, cut costs, and unloaded unproductive assets.  Once things began to turn around, companies built up huge cash reserves to safeguard against another economic downturn.

Eventually they ramped up stock repurchases and increased their dividend to return some of that cash to shareholders.  And we’ve even seen companies use their cash to grow their business through M&A activity.

Now we’re finally starting to see companies loosen their purse strings and begin increasing their capex.  This has positive implications for a number of economically sensitive sectors.

In fact, some are calling for capex spending to fuel a new Super Bull Market in the years ahead.   Right now I see the technology sector with the most to gain from the increase in capex spending.

Over the last few weeks, we’ve seen analysts ramping up their revenue growth estimates for the sector because capex spending is on the rise.  And tech stocks typically respond very positively when revenue estimates are revised higher.

Right now the Technology Select Sector SPDR (XLK) is trading for $30.28.  It’s up 5% year to date but is lagging behind the S&P 500’s 9.5% gain so far this year.  And it’s still 4% below the 52-week high.

Technology Select Sector SPDR

Here’s the thing…

I think we could see the faster pace of capex growth turn the tide for tech stocks.  In fact, it could be the hottest sector in the second quarter.  Take a look at buying the September at-the money call options on XLK… they could fuel a super bull market in your trading account over the next few months.

Good Investing,

Corey Williams

Tags: , ,

Category: ETFs, Options Trading

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

Leave a Reply

Your email address will not be published. Required fields are marked *