Get 40% Off
💰 Buffett reveals a $6.7B stake in Chubb. Copy the full portfolio for FREE with InvestingPro’s Stock Ideas toolCopy Portfolio

Tech Stocks Still Lead Market by Wide Margin in 2023

Published 27/07/2023, 09:46 pm

This year’s rally in US stocks continues to rely heavily on a handful of red-hot sectors, based on a review of ETFs through yesterday’s close (July 26). Shares in technology, communications and consumer discretionary are well ahead of the broad market, providing strong upside support.

The top-performing sector so far in 2023: technology. Technology Select Sector SPDR® Fund (NYSE:XLK) is up 42%-plus year to date. That’s more than double the broad market’s gain via S&P 500 (NYSE:SPY).XLK Daily Chart

Close second- and third-place sector performers this year: communications (XLC) and consumer discretionary (XLY) shares. Both are also outperforming SPY by wide margins.

The lopsided performance profile worries some analysts, who say that the reliance on a handful of winners presages trouble for equities generally. Perhaps, but for now, the bullish momentum is helping to lift all, or at least most, boats, albeit in widely varying degrees.ETF Performance YTD Returns

Equity analysts at JPMorgan Chase warn that the stock market’s dependence on a small number of mega-cap names has increased at the fastest pace in decades, which is seen as a warning sign. JPMorgan Chase Chief Global Markets Strategist Marko Kolanovic advises that history suggests that when the market becomes dependent on a small number of big stocks, the trend ends in tears.

The contrast between winners and relative losers this year is certainly stark. As shown above, some of the sector laggards are barely participating in the broad market rally, if at all. Healthcare (XLV) and energy (XLE) have barely increased in 2023. Meanwhile, utilities (XLU) have lost ground.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

Profiling all the sector funds listed above shows that bullish momentum has gone into overdrive recently, based on a set of moving averages. In particular, short-term momentum (red line) has shot up to the highest level. The lack of confirmation so far, in medium-term momentum (blue line in chart below), raises questions about the durability of the market rally.

SPY vs Percentage of Sector Funds Trending Up

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.