The chart overlays the performance of technology stocks relative to the S&P 500 with data that shows periods of labor shortages and surpluses. During periods of extended labor shortages, like during the 1950s, 1960s, and 1990s, technology stocks significantly outperformed the S&P 500.

Fundstrat cofounder and head of research Tom Lee expects technology stocks to go “parabolic” again in the coming years as a new labor shortage gets underway and as technologies like automation and artificial intelligence help fill the gap of fewer and fewer workers. 

“Solving the global labor shortage requires technology that can act autonomously on the physical world,” Fundstrat told clients in a note last year.

The uptake of that technology should lead to increased business for tech companies, which ultimately leads to increased profits and higher stock prices. 

“Technology demand, in our view, will accelerate as companies seek to offset labor shortage,” Fundstrat said. 

The current labor shortage, measured by the difference between total population growth and working-age population growth, began in 2015 and is expected to last until 2047, according to Fundstrat. 

“The outperformance of technology during periods of labor shortage is substantial — and we believe the forecasted 2015 to 2047 [labor shortage] to benefit technology stocks,” Fundstrat said in a recent note. 

The information technology sector already makes up about 30% of the S&P 500. That allocation jumps to 43% when you include broader tech companies like Meta Platforms, Alphabet, Amazon, and Tesla, which are found in the communication services or consumer discretionary sectors. 

While technology stocks had a strong year in 2023, with the Nasdaq up more than 50%, Fundstrat expects the gains to continue in 2024. 

“We like technology/FAANG $XLK $QQQ,” Lee said, referring to the mega-cap tech stocks, the technology sector, and the Nasdaq 100.