t

Tech is Leading Again

The S&P 500 Information Technology Sector has gained 27% in the past six months, outperforming the broader S&P 500 by more than 10%. But could its run of leadership just be getting started? As shown in the LPL Chart of the Day, the sector just broke out to fresh relative highs for the first time since September 2020.

View enlarged chart.

14 months without a new relative high may not sound like a lot, but that actually represented the longest streak of underperformance for the tech sector since a more than 3-year run that ended in 2015. And while the sector’s breakout does not mean that it will automatically go on another run of multiyear outperformance, we do believe context is important and that investors should recognize that just because technology has had a strong run recently, over the past 14 months the sector has performed just in line with the broader market. We would also note that these are not all-time relative highs for the sector, as it still sits below its early-2000 peak.

“The theme of 2021 has been rotation, rotation, rotation,” said LPL Financial Technical Strategist Scott Brown. “But technology is the only sector to recently hit a 52-week relative high and we believe that sets up a favorable outlook heading into 2022.”

From a fundamental perspective, technology continues to be a key enabler of higher productivity and home to many of the fastest growing companies. Despite topping all sectors with 9% earnings growth in 2020, earnings growth this year is on track to exceed 30%.

So does this mean investors should be shifting all of their assets over to growth stocks again? We don’t necessarily think so, and continue to find opportunities in both growth and value styles. In our proprietary sector trend rankings, technology comes in at #2, trailing only energy and just ahead of financials, both of which sit firmly in the value style and have benefitted from the continued reopening and above trend economic growth. We believe quality growth and more cyclical value companies can both do well in the current environment and remain most negative on defensive sectors such as consumer staples and utilities that have traditionally underperformed during early-to-middle stages of the business cycle.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

Tracking # 1-05214631

This entry was posted on Thursday, November 18th, 2021 at 3:04 pm. Both comments and pings are currently closed.

Check the background of this investment professional or firm on FINRA's BrokerCheck