If Not Tech, Then What?

JC Parets
August 7, 2023

Remember in the back half of last year, when virtually everything was working EXCEPT for Tech stocks?

Well a funny thing happened early in 2023, money rotated into Tech and other Large-cap Growth.

These Tech stocks did so well, that people who are bad at math convinced themselves, and others around them, that it was only 5 or 7 stocks going up.

That was hilarious.

And while it definitely wasn't just 7 stocks, but thousands of stocks ripping in your face all year, Technology was certainly the leader along the way, particularly on a market-cap weighted basis.

But that relative strength has been rolling over the past few months as momentum has also diverged negatively.

Doesn't that make perfect sense during a regime change?

Take a look at a chart of Technology relative to the S&P500 already making new multi-month lows:

Meanwhile, Tech looks even worse relative to Energy stocks.

Remember, Energy was one of the bigger laggards this year, after being the initial leadership group off the 2020 lows.

Here is Tech now making new multi-month lows relative to Energy stocks:

Keep in mind, Technology represents almost 30% of the S&P500. So if Tech is struggling, S&Ps are going to have a hard time going higher.

And it's not just Tech, but Large-cap Growth in general. Names like Tesla, Google, Meta and Amazon are NOT even Technology stocks. Those are Communications and Discretionary names.

So all together, they represent a big portion of Large-cap Growth.

Look at Energy breaking out relative to the Large-cap Growth Index, as momentum towards Energy has diverged positively.

Is it over for Tech?

I doubt it.

But for now, the weight of the evidence continues to point to other areas being the better bet.

With the S&P500 running into resistance relative to the CRB Index, is it time for Commodities to resume their leadership?

That's the bet we're making.

But it's not just Large-cap U.S. Energy stocks.

There's a lot more to the Commodities complex.

I really enjoyed this interview with Legend Mark Fisher. He inspired a lot of the work you see me do here every day.

He talks a lot about Commodities in this episode.

Check it out and let me know what you think!

JC

 

 

 

 

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