Tag: Information Technology

Top Charts from the Tech Sector

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.

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(Premium) Information Technology Sector Deep Dive

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.

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(Premium) Information Technology Sector Deep Dive – August

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.

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(Premium) Information Technology Sector Update – July

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.

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Tech Stocks Leading the Way

We did it!

More than 23 years ago, the Information Technology sector peaked relative to the S&P 500 index. From its dotcom bubble highs in 2000 to its lows in the fall of 2002, Tech dropped 80% and lost two-thirds of its value relative to the rest of the market. Two decades later, we’re finally setting new all-time highs.

It wasn’t easy, especially over the last 3 years. Those former highs acted as stiff resistance on every rally attempt. First it was the 2000 monthly highs, then the weekly highs, then the monthly highs again. Each time it looked like things might be turning the corner, sellers stepped in and pushed Tech back lower. But a failed breakdown in the first weeks of this year was the catalyst needed to finally find fresh air.

The bigger the base, the higher in space. And 23 years seems like a pretty big base to us. We think Tech is structurally positioned to be a leader for the months and years to come.

True, AI-fueled speculative frenzy in May might have pushed things a bit far in the near-term, but Tech isn’t ‘stretched’. It’s gone nowhere for two decades! This ratio has another 18% to the 138.2% Fibonacci retracement from the dotcom collapse. We’ve got 30% to the 161.8% retracement. Those are our intermediate term targets for the sector. (Remember, since we’re talking about a ratio, those are gains relative to the S&P 500, not on an absolute basis.)

Those are lofty targets, and we don’ think we’ll go there in a straight line. Though we’re quite bullish on the sector longer-term, we believe rotation is the life-blood of bull markets, and we’re poised for some flows back into some un-loved spaces of the market.

The equally-weighted tech sector relative to the equally-weighted S&P 500 index just found resistance at its former highs. This would be a pretty logical place to see tech overall start to pull back.

Of course, that won’t happen if the mega caps keep dominating the way that they did in May. That could happen, and to some extent we’ll need the mega caps to keep leading if we expect tech to keep outperforming longer-term. But we doubt the same playbook is going to work all the time. A broadening of the rally would be healthy.

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