Technology was the big market laggard again on Wednesday following disappointing earnings and more software anxiety. Seven of the 11 sector SPDRs were higher on the day, but the State Street Technology Select Sector SPDR Fund (XLK) lost 2.8%, writes Tom Essaye, president of the Sevens Report.
While tech was very weak, the “rest of the market” did relatively well. The Invesco S&P 500 Equal Weight ETF (RSP) rose more than 0.8% and remains a very quick and easy way to diversify away from tech while maintaining high-quality large-cap exposure.
The reason for the weakness was a combination of disappointment in semiconductor earnings and weakness in the memory stocks. On the flip side, the State Street Materials Select Sector SPDR ETF (XLB) and State Street Energy Select Sector SPDR ETF (XLE) were the best-performing sector funds, rising around 2.3% each thanks to a surge in energy commodities.
Defensive sectors also had a strong day – not because of anything specific, but instead because defensive sectors are some of the beneficiaries of money rotating out of tech. Bottom line, tech pressure remains the theme of this market as the “rest of the market” continued to trade generally well.
At this point, the negativity surrounding AI-related tech is getting pretty intense, too. Granted, there are reasons for the skepticism. But the declines in some of these stocks are substantial. If AI is more resilient than expected (which has been the case in each test so far over the past three years), then there are opportunities developing.
