Salient to Investors:

Tech, energy and financial stocks are the most inexpensive industries in the S&P 500 with multiples of less than 14 times earnings. US tech stocks, the second-best industry of the past decade, are at 13 times projected earnings, the lowest level versus the S&P 500 in at least 7 years.

Analysts expect earnings at the 70 companies in the S&P 500 IT Index to fall 5.5 percent in Q2 2013 as consumers and government agencies cut spending. 74 percent of 273 S&P 500 companies so far reporting have beat estimates.

In quarters when tech stocks rallied the most or second-most in the S&P 500, the US expanded 3.2 percent, versus 2.4 percent on average since 1989 and 0.8 percent on average when tech stocks trail the S&P 500.

Bulls say tech stocks tend to lead during expansions and are too cheap. Bears cite less corporate and government spending on technology as growth weakens in Europe and China. Bloomberg Industries says Obama’s proposed budget would reduce IT spending by $2.5 billion by 2015.

Walter Todd at Greenwood Capital said tech has been nothing short of terrible and says we need to see the downward revisions abate before we can get sustainable outperformance.

Peter Sorrentino at Huntington Asset Advisors expects the economy to flatline for a while and managers will sit on their budgets until the end of 2013 – there is no catalyst for ramping up production.

James Paulsen at Wells Capital Mgmt said tech stocks are a bargain and predicts a rally as companies buy back shares, despite being nervous about the large-cap tech growth stories, but expects to see much extra spending start before the end of 2013.

Bloomberg Industries and OMB say the US government will spend less on IT in the next 3 years.

The median economist expects GDP to grow 2 percent in 2013 versus 2.5 percent annualized growth in Q1 .

Economists expect Europe to fall 0.3 percent in Q2 2013 versus a 0.5 percent decline in Q1 2013.

Chris Hyzy at US Trust said capital expenditures in corporate America, corporate China, corporate Europe, are what drive the tech profits, and that has been flat.

Read the full article at

Click here to receive free and immediate email alerts of the latest forecasts.