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Tech Stocks Are Hot… Are the Others Not?

Tech stocks are on fire right now!

Whether you’re watching smaller companies, like Zoom Video Communications (NASDAQ:ZM), soar higher after crushing earnings expectations or the largest company of all, Apple (NASDAQ:AAPL), continue to climb after its 4-for-1 stock split, you’re seeing incredible bullishness on Wall Street right now for tech stocks.

Source: Shutterstock

You can see this illustrated by looking at a comparison chart of the ten S&P 500 sectors and the S&P 500 itself, as represented by State Street Global Advisors’ Select Sector SPDR funds (Fig. 1).

Here’s how things have been playing out since the S&P 500 reached its pre-pandemic high on Feb.19:

  • Technology Select Sector SPDR Fund (NYSEARCA:XLK): 22.49%
  • Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY): 14.66%
  • Materials Select Sector SPDR Fund (NYSEARCA:XLB): 7.01%
  • SPDR S&P 500 Fund (NYSEARCA:SPY): 4.21%
  • Health Care Select Sector SPDR Fund (NYSEARCA:XLV): 3.12%
  • Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP): 1.80%
  • Industrial Select Sector SPDR Fund (NYSEARCA:XLI): -6.57%
  • Real Estate Select Sector SPDR Fund (NYSEARCA:XLRE): -12.27%
  • Utilities Select Sector SPDR Fund (NYSEARCA:XLU): -16.58%
  • Financial Select Sector SPDR Fund (NYSEARCA:XLF): -19.27%
  • Energy Select Sector SPDR Fund (NYSEARCA:XLE): -35.44%
A chart comparing the sectors of the S&P 500 through September 2020.

Source: Chart by TradingView

Fig. 1 — Sector Comparison Chart — Chart Source: TradingView

As you can see, the technology sector — as illustrated by the performance of XLK — has been the top-performing sector by a wide margin.

This, however, shouldn’t be a surprise to anyone. Tech stocks have been driving the market for years.

According to Bloomberg, three tech stocks — Apple, Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) — have accounted for an astounding 25% of the S&P 500 gains during the past five years.

NOTE: We know AMZN isn’t “officially” part of the technology sector, but we are making it an honorary member. Amazon Web Services (AWS) is the company’s fastest-growing business segment and already generates 14% of AMZN’s revenues with higher margins than either of the other two business segments: Amazon International and Amazon North America.

The Other S&P 500 Sectors

But what about the other sectors? Are they joining the bullish rally?

Looking at the chart in Fig. 1, you can see that all of the sectors have rebounded from their post-coronavirus lows, but only half have fully recovered their losses.

However, that doesn’t mean these other sectors aren’t currently doing well. While the technology sector is certainly leading the way higher, we’re getting decent participation from the rest of the market.

You can tell by looking at the percentage of S&P 500 stocks that are currently trading above their simple 200-day moving averages — a market breadth indicator shown in Fig. 2.

A chart showing the percentage of S&P 500 stocks above their simple 200-day moving averages.

Source: Chart by TradingView

Fig. 2 — Percentage of S&P 500 Stocks Above Simple 200-Day Moving Average — Chart Source: TradingView

More than 60% of S&P 500 stocks are currently above their 200-day moving averages. Compared to years past, this is a strong number.

Of course, there is certainly plenty of room for this market breadth indicator to move higher, but it is encouraging to see this much participation in the bullish recovery.

The Bottom Line

Two weeks ago, when the S&P 500 (SPX) was sitting just below 3,400, we applied a Fibonacci extension to the bullish run the index made from late March through early June — before the index started to consolidate for a month. This gave us a bullish target for the S&P 500 of 3,603.82.

As you can see in Fig. 3, we’re almost there.

A daily chart of the S&P 500 showing a Fibonnaci extension.

Source: Chart by TradingView

Fig. 3 — Daily Chart of the S&P 500 (SPX) — Chart Source: TradingView

Thanks to the technology sector, coupled with the broad participation we’re seeing in this bullish run, we don’t think it will take too much longer for the S&P 500 to hit our target.

We plan to continue taking advantage of this bullish run as long as we can.

On the date of publication, John Jagerson and Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it.

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