US Technology Sector (XLK) Outperforming S&P500. But is the trend maturing?

Our Monthly Publication “US Sectors Relative to S&P500” was recently published.

Whilst the full publication looks at a selection of 12 major US Sectors, investors have recently been focused on the Technology Sector.


US Technology Sector continues to Outperform S&P500This should come as no surprise, however, as the Technology Sector has been Outperforming the broad US Equities benchmark (SPX) since early 2013. In fact, as can be seen, the bullish trend is accelerating higher and tracing out a progressively steeper trend.

We maintain an Outperform rating on the Technology Sector.

However, as we highlighted during our recent appearance in Werthstein’s most recent market update (video can be found here)  there are early warning signs that things may not be as clear as they appear.

The steepness of the trend, alongside potential negative divergence on the RSI reading, highlights increased risk of a pullback. We anticipate low- moderate-risk investors will be exploring opportunities to reduce exposure in Technology stocks, as the potential bubble continues to expand.

Within the Technology Sector itself, we have scanned 334 component stocks to calculate how many individual names are themselves Outperforming the S&P500 Index.

On a monthly basis, we have discovered only 151 individual stocks are Outperforming the broad index. This suggests the Technology Sector Outperformance is being driven by only ~45% of its component names.

Additionally, we scanned individual stocks with a market cap of USD100billion or more.


Apple (AAPL) continues to Outperform S&P500Of these 12 names, only 4 are Outperforming the S&P500 Index.

Broadcom, Cisco Systems, Nvidia and the biggest name of all, Apple, are currently Outperforming the S&P500.








Facebook (FB) showing signs of weakness relative to S&P500Those names which are weakening, include Alphabet, Facebook and Microsoft.









Taking these factors into account – namely

steep rising trend

negative divergence on momentum studies and

lack of internal breadth – both broadly and within the “big names”,

we believe the US Technology Sector will find it progressively more and more difficult to sustain higher levels.


If investors begin to reduce their exposure in Apple, we believe the Technology Sector will be at risk of a sharp corrective pullback.


Global equities to find difficulty sustaining further gainsThis correction could prove particularly swift, as global equities are also coming under pressure and US investors in particular are experiencing a period of increase political risk.


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