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About That Tech Rally …

22 May 2020   |  

As markets have bounced off what has proven at least a near-term bottom on March 23, many have commented on narrowing breadth—i.e., market leadership among a decreasing number of stocks. Specifically, many noted the bounce was largely driven by the big tech stocks—particularly those commonly known as the FANG stocks (Facebook, Amazon, Netflix and Google, with some adding Microsoft and Apple and rendering the acronym unpronounceable). It’s worth noting that not all of those names are classified as technology companies from a GICS sector perspective: Facebook, Netflix and Google (Alphabet) all fall in the communication services sector, while Amazon is considered discretionary and Microsoft is the only “true” technology company.

Nevertheless, sector returns—in the US and overseas—tell a slightly different story from a tech(/communication services/discretionary)-led bounce.

Exhibit 1: S&P 500® Index Sector Returns, Peak to Trough

Source: FactSet, as of 21 May 2020.


Exhibit 2: S&P 500® Index Sector Returns, Rebound

Source: FactSet, as of 21 May 2020.

Exhibit 1 shows the S&P 500® Index sector returns from the peak to the trough. As you can see, energy far and away led the way down—with financials and industrials also declining and staples and health care holding up best. Technology, communication services and discretionary stocks were nearer the middle of the pack. Exhibit 2 shows the subsequent bounce. Based on the aforementioned discussion of narrowing breadth and FANG leadership, one might expect to see some combination of tech/communication services/discretionary sector lead the way. And indeed, tech and discretionary have certainly bounced—but not nearly like energy has bounced.

Non-US stocks paint a similar picture.

Exhibit 3: MSCI EAFE Sector Returns, Peak to Trough

Source: Bloomberg, as of 21 May 2020.

Exhibit 4: MSCI EAFE Sector Returns, Rebound

Source: Bloomberg, as of 21 May 2020. 

This makes intuitive sense: It’s common to see the sector hit hardest during a downturn lead the way during the rebound. But for all the talk of (broadly defined) tech stocks’ leadership, it is interesting to get a slightly different take from the sector level.

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