The rally in U.S. stocks, propelled by technology stocks, has taken Wall Street analysts by surprise. However, these gains are now fading at an accelerated pace.
According to FactSet data, the S&P 500 Information Technology sector (CO:IUIT) entered correction territory on Tuesday, losing 10.5% from its recent 52-week closing high of 3,207.29 reached on July 18. A correction is defined as a 10% drop from a recent high. On Tuesday, the information-technology sub-index closed at 2,869.64, declining 1.8% amidst a market rout where all 11 sectors of the S&P 500 finished lower.
Throughout most of 2023, information technology stocks have been the second-best performers on the S&P 500 index, exceeded only by the communications services sector. This sector heavily relies on a select few of the “Magnificent Seven” technology and media stocks that have driven this year’s rally.
In comparison, communications services stocks (XX:SP500.50) have only fallen 5.2% from their highs. Prominent companies like Facebook parent Meta Platforms Inc. (META) and Google parent Alphabet Inc. (GOOG, GOOGL) have endured this recent bout of market volatility with only modest losses.
Market Performance: Tech Sector vs Other Sectors
Recent trends in the stock market have shown contrasting performances among different sectors. While the information technology sector has faced challenges, other sectors have demonstrated resilience.
Information Technology Sector Struggles
Many mega-cap stocks in the information technology sector have experienced declines. Nvidia Corp., a leader in the artificial intelligence software market, has seen its stock drop by nearly 9% in the past month. Likewise, Apple Inc. and Microsoft Corp. have both lost more than 3% of their value during this period. Oracle Corp., which recently had a disappointing earnings report and guidance, has suffered notable losses of 9.6% over the past month.
However, despite these setbacks, both the information technology and communication services sectors have still managed to maintain significant year-to-date gains. Information technology is up by 32.1%, while communication services has recorded an impressive gain of 38.1%, outperforming the broader S&P 500 index, which has only seen an 11.3% increase.
Recent Performance of Other Sectors
In contrast, other sectors have experienced greater losses in the past week compared to the information technology sector. According to FactSet data, real estate and consumer discretionary sectors have both fallen by nearly 6% in the past five days, while information technology has experienced a smaller decline of 4.3%. Notably, real estate stocks are on the brink of entering a bear market, having dropped nearly 20% from their peak on February 2.
Overall Market Conditions
Despite these fluctuations, the S&P 500 index is still a few percentage points away from entering correction territory. As of Tuesday’s close, it has fallen 6.9% from its 52-week high of 4,588.96, which was reached on July 31, according to FactSet data.
While the information technology sector has faced recent challenges, other sectors have experienced even greater losses. The market continues to navigate through changing dynamics, and investors are closely watching the performance of different sectors for potential investment opportunities.
