US investor sentiment on tech turns sharply negative

Within the span of one month, US investor sentiment about the information technology sector shifted from bullish to extremely bearish even as the outlook on tech spending brightened.

In December 2023, the IT sector was the second most-favored after healthcare, according to S&P Global Market Intelligence's Investment Manager Index, a monthly survey of investment management professionals. Now, in January, IT is the most disliked by surveyed investment managers while healthcare remains the top pick.

Given the rapid swing, it appears fundamentals have little to do with the current bearish sentiment.

IT spending intent by consumers and businesses is on a recovery path after being in recession for most of 2023, according to data from S&P Global Market Intelligence 451 Research.

US businesses and consumers expressed an overall positive view of technology spending during the fourth quarter of 2023, the first overall positive quarterly outcome in more than a year, according to S&P Global's US Technology Demand Indicator, a survey-backed composite of US intent to spend on technology.

For the last three months of 2023, the Tech Demand Indicator score was 51.42. Any score greater than 50 represents positive intent.

S&P Global's Investment Manager Index survey includes monthly responses from a panel of just under 300 participants employed by firms that collectively represent approximately $3.500 trillion in assets under management. Data was collected Jan. 3-7. If you would like to receive the full report on a regular basis or participate as a panel member, please email economics@spglobal.com.

"Intent is segmented, with businesses in general expecting spending on core requirements like information security and cloud infrastructure to grow in the coming quarters, along with continued and increasing interest in AI and data analytics technologies," 451 Research analysts Liam Eagle and Malav Parekh wrote in a Jan. 19 report.

While the overall score is positive, Eagle and Parekh noted that survey respondents will be cautious with their spending in the face of external economic conditions, such as inflation and interest rates.

Another concern for investors is valuations. The S&P 500 Information Technology Index recovered most of the losses incurred in 2022, appreciating by about 58% in 2023. Anecdotal evidence listed concerns over valuations following the tech rally in 2023 as the key reason for the sharp decline in IT sector sentiment, according to Market Intelligence's Investment Manager Index survey.

Healthcare, which was more richly valued than tech before the COVID-19 pandemic, has not appreciated as much in 2023. The S&P 500 Healthcare Index rose 6% last year, though it topped investors' rankings throughout 2023.

The valuation gap between IT and healthcare resumed its upward trajectory in 2023 after narrowing significantly in 2022. Investors believe that the gap should start closing again as defensive stocks like healthcare gain favor in a market that has suddenly put more weight on geopolitics than the boost from an expected less restrictive central bank policy.

Tech, however, was among investors' least favored sectors at the beginning of 2023 as well. They moved up in their preferences as stocks recovered and fundamentals remained strong. Tech EBITDA margins continued to improve through the third quarter. Healthcare, the sector investors were most bullish on throughout 2023, saw its margins stagnate.

451 Research is a technology research group within S&P Global Market Intelligence.