Get 40% Off
🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

U.S. Stock Market’s Tech-Fueled Rally Cools Off: What's Next?

Published 08/06/2023, 09:46 pm
Updated 09/07/2023, 08:31 pm
US500
-
SPY
-
XLY
-
XLK
-
XLC
-

Shares of technology firms, along with digital communications and consumer discretionary stocks, are the US equity market leaders by a wide margin in 2023, based on a set of ETF proxies. The rest of the field is far behind, with nearly half underwater year to date, as of Wednesday’s close (June 7).

Technology Select Sector SPDR Fund (XLK) has rallied nearly 32% so far this year. After bottoming in October, the ETF has been on a relatively consistent upswing that’s carried the ETF to a 1-1/2 year high before pulling back in recent days. 

XLK Weekly Chart

As tech and related shares continue to dominate and drive the stock market’s gains this year, worries about the sector’s red-hot run are mounting amid warnings that the runup has gone too far too fast. As CTech noted earlier this week:

According to Bank of America, the seven technology giants last week reached a trillion dollar market value for the first time—make up 28% of the S&P 500 in market capitalization terms. This is the highest level historically reached by this group of companies in this measurement method. A similar level was also recorded during 2022.

In fact, the market value of the seven technology giants is greater than the combined market value of all the companies in the S&P 500 index from the sectors of industry, finance and energy.

The communications sector (XLC) is nipping at XLK’s heels as the second-best sector performer, followed by consumer discretionary (XLY), which is up nearly 23% year to date. The other sectors are behind the trio of leaders, with several sectors posting modest losses in 2023. The broad market, based on SPY is enjoying a solid gain this year, rising 12%, thanks largely to the performance fortunes of the three sector leaders. ETF Performance YTD Returns

A review of the overall market trend, based on aggregating a set of moving averages for the sector funds listed above, suggests the rally is cooling. After rocketing higher following October’s trough, market sentiment has recently pulled back to a middling level. That alone doesn’t signal that the tech rally is over, but at the very least, the softer reading suggests a period of consolidation for the market overall lies ahead.

SPY vs Percentage of Sector Funds Trending Up

Latest comments

Loading next article…
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.