Chart is for illustrative purposes only. Past performance is not necessarily an indication of future results.
Equity market volatility has heated up since late January, causing some to fear a more pronounced sell-off may be underway. However, we examined recent performance and found that mega cap technology stocks, which once held market leadership, are a factor in driving the decline. As an example, last week software stocks were hit hard because artificial intelligence improvements caused investors to reconsider the sector's competitive positioning and long-term value. Among all the negative performers in tech, the average stock is down 16% and the entire tech sector accounts for more than 20% of the S&P 500’s weight.
It's not all bad news. Outside of tech, S&P 500 stocks are climbing. Sixty-four percent of those stocks are positive year to date, yielding an average return of 11.4% through February 6. We believe a possible reason is that a market rotation is underway—out of big technology stocks and into cyclical areas such as value stocks. In our view, this trend has legs.
Cyclical stocks have historically been more sensitive to fluctuations in the economy, and right now we believe that the U.S. economy is resilient. With market participation and earnings growth broadening beyond big tech, we remind clients of the importance of diversification—across market capitalizations, sectors and even geographies.
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The S&P 500 Index: The S&P 500 Index is a stock‐market index that tracks the performance of 500 of the largest publicly traded U.S. companies, weighted by their market capitalization, and is widely used as a benchmark for the overall U.S. equity market. Investors may not invest directly into any index.
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