2023-06-08 16:31:00 ET
Summary
- Technology, digital communications, and consumer discretionary stocks lead the US equity market in 2023.
- The market value of the seven technology giants (Microsoft, Amazon, Alphabet, Apple, Tesla, Meta, and Nvidia) 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 overall market trend suggests the rally is cooling, and a period of consolidation for the market overall lies ahead.
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.
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 run-up has gone too far too fast. As CTech noted earlier this week:
According to Bank of America, the seven technology giants—Microsoft, Amazon, Alphabet (Google’s parent company), Apple, Tesla, Meta, and Nvidia, which 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 SPDR S&P 500 ( SPY ) is enjoying a solid gain this year, rising 12%, thanks largely to the performance fortunes of the three sector leaders.
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.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Tech Is The Hot Sector For Stocks So Far In 2023