Technology Tests Dot-Com Bubble Highs

Over the last 10 years, technology has dominated its fellow sectors. $XLK is up nearly 500%, while the S&P 500 is up only +225% in the same period. 

If we’re in the midst of a paradigm shift - technology is likely to lead as we’ve seen in previous cycles. 

Why? Paradigm shifts are the by-product of innovations in technology. The internet and cell phone were catalysts in our recent paradigm shifts. 

Today, technology is at an inflection point. The ratio below features Technology ($XLK) relative to the S&P 500 ($SPY), resting at levels dating back to the dot-com bubble high. 

Some may see a top… 

I see a multi-decade base ready to resolve higher. 

Watching Big Cap Tech

The reality is, we live in a market-cap-weighted world. 

For $XLK to break out relative to $SPY, the biggest big caps will need to find new highs. 

Market darlings - $AAPL, $MSFT, and $NVDA - account for ~40% of $XLK. 

We can observe the trends of these 3 holdings to gauge the direction of the tech sector. 

Microsoft relative to $XLK is within 4% of an all-time high. 

Nvidia relative to $XLK is 7% shy of an all-time high. 

However, Apple relative to $XLK is nearly 30% below its Sept. 2022 all-time high. A much different chart than the two above.

I’ve touched on Apple’s recent underperformance and its uninspiring infusion of AI.

If the technology sector fails to emerge relative to $SPY, I imagine $AAPL will be the culprit.

I highly recommend this great read via Sam Gatlin on the Chinese Apple’s (Xiaomi) outperformance relative to its US competitor. 

Tomorrow, I’ll share why I believe America is overexposed to Apple. Until then, I want to leave you with a question… 

What percentage of American investment portfolios hold $AAPL? Either directly or indirectly via ETFs.

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Godspeed - Rosebee