ETF Insights| December 1, 2024 | Information Technology Sector
Price Action & Performance
NOTE: We’ve switched our Info Tech. Sector fund proxy from the XLK to the VGT ETF for December as we are now benchmarking our Elev8 Sector Model to the largest domestic sector fund in each category.
The Tech Sector was in stasis for much of November and the loss of upside momentum is starting to become a concern. That said, the sector accounted for most of the gains in 2023 and a longer-term consolidation is expected after such a robust period of performance. This leaves us with a neutral outlook on the sector, though we give the longer-term uptrend the benefit of the doubt.
At the industry level, Semiconductor stocks, which have outperformed the S&P 500 by 44% over the past 12-months, are now oversold with the SOX index near intermediate-term support. The Comm. Equipment Industry has seen improvement over the last 3-months while the other industries have been near market performance levels.
At the stock level our favorite names are GDDY, ITT, FICO, ORCL, PANW, NOW, PLTR, TYL, ANET, GLW, ZBRA, AVGO, MPWR and NVDA. We remain constructive on AAPL as well along with several others. However, we note that Semiconductor stock level performance has continued to narrow. If we don’t see buyers defending support soon, we will be forced to get more negative in our outlook based on the technical inputs into our model.
Economic and Policy Drivers
In November, the U.S. Information Technology (IT) sector experienced significant growth, driven by favorable economic indicators and policy developments. The Federal Reserve’s decision to maintain interest rates, amid signs of disinflation, provided a stable financial environment conducive to investment in high-growth tech companies.
This monetary policy stance, coupled with robust consumer spending and a resilient labor market, bolstered demand for technology products and services. Additionally, the sector benefited from increased corporate investments in artificial intelligence (AI) and cloud computing, as businesses sought to enhance operational efficiency and innovation.
Looking ahead to December, the IT sector’s outlook remains positive, supported by ongoing technological advancements and strategic corporate initiatives. The anticipated continuation of AI integration across various industries is expected to drive demand for software and hardware solutions. Furthermore, the sector may see increased merger and acquisition activity, as companies aim to strengthen their technological capabilities and market positions.
However, potential challenges include navigating evolving regulatory landscapes and addressing global supply chain constraints, which could impact production and delivery timelines. Overall, the IT sector is poised for sustained growth, underpinned by innovation and strategic investments. The big question for investors is how much of the good news for the sector has already been priced into stocks in 2023 and the first half of 2024.
In Conclusion
We are seeing some signs of “AI fatigue” in the stock charts that comprise the Technology Sector. As expected, there has been some reflation, but breadth measures in the Semiconductor space have narrowed and the Software industry is showing real vulnerability. We’ve scaled back our long to reflect these challenges. Our Elev8 Sector Model starts December with an OVERWEIGHT allocation to the Tech Sector of 1.42% for December.
Chart | VGT Technicals
- VGT 12-month, daily price (200-day m.a. | Relative to S&P 500 | MACD | RSI)
- VGT is consolidating its attempted bullish reversal. The bet here is this intermediate term consolidation will be accumulated sooner than later
VGT Relative Performance | Tech Industry Relative Performance | 3-Months
Data sourced from FactSet Research Systems Inc.
