Technology (excerpt)

The IT sector has significantly underperformed the S&P 500 so far this year. I haven’t been keen on the sector mostly because of the commoditization of both hardware and software. The proliferation of digital devices has depressed PC sales. The Cloud may be doing the same by allowing users of the devices to do more of their computing up there rather than down here on their PCs. The Cloud may also allow more users to rent rather than to own the software they use.

Nevertheless, as I recently observed, the IT sector is the cheapest it has been since 1995. IT companies tend to generate good cash flow. If they pay more of it as dividends, then they might sport higher valuation multiples as do dividend yielding stocks in other sectors. So we recommend a market weight in the sector.

The data released in the Fed’s March industrial production release for the information processing industry are uninspiring. Output of computer and peripheral equipment is down 49.2% since the record high during May 2008, and is down at levels not seen since the end of 2004. Communication equipment output has been flat for the past year, and in a flat range since 2000. On the other hand, semiconductor output is at a record high. Capacity utilization is depressed at 65.3% for computer manufacturing. It is 71.1% for semiconductors and 79.0% for communication equipment.

Today's Morning Briefing: Not Too Swift. (1) Three-speed global economy. (2) IMF gives a haircut to 2013 world growth. (3) IMF still upbeat about 2014. (4) US more likely to impress than depress. (5) Construction and energy output leading the way. (6) Europe fiddles while Draghi pleads. (7) European SMEs are stressed. (8) Don’t hold your breath for euro zone banking union. (9) Weak yen should boost Japan’s exports, though maybe not to China. (10) Regulators shining a light on China’s shadow banking system. (11) Focus on market-weighted Information Technology. (More for subscribers.)