Information Technology spent most of 2023 in the pole position. Earlier this month, the S&P 500’s largest sector was up more than 45% year-to-date. Weakness in the back half of September has erased nearly a third of those gains and pushed Tech from the top of the leaderboard.

We’re not typically prone to hyperbole, but is there any chart more important than this one when it comes to the future of the equity markets?

Information Technology is the biggest S&P 500 sector by far, accounting for more than a quarter of the index. It took Tech 18 months to set new highs after peaking in December 2021, becoming just the second sector to do so (behind the Industrials). Then, just when Tech looked unstoppable, the rally faltered. The group fell 10% through the first half of August, undoing the breakout and forcing us to question whether the trend was set to reverse lower.

We’re still waiting on an answer.

The tide is turning.

We touched on the risks in yesterday’s market outlook for the month of August. Interest rates are back on the rise, and the US Dollar is finding renewed strength. It’s much to early to tell how long these shifts can last, but one thing is clear: a more cautious outlook toward stocks over the coming weeks is appropriate.

The Information Technology sector has jumped 40% to start the year. It’s outpaced every other sector and more than doubled the performance of the S&P 500 Index. Along the way, Tech surpassed a record level that had been in place since the dotcom bubble. It’s been so dominant that every other area of the market has lagged the benchmark since 2018.

The extreme level of dominance can last for a long time, and it has.

But it can’t go on forever.

Tech finally did it

I keep hearing and seeing the same complaints about Tech

A reckoning is coming.

Tech is back in the driver’s seat in 2023. It’s the top-performing sector of the year, up 22% through the end of March. It closed the month at its highest point since last August.