“It’s all about the Benjamins” is a popular 1997 song by American rapper and producer Puff Daddy. An action/comedy film by the name “All about the Benjamins” was also produced in 2002. For the past few years in the stock markets “It’s all about Technology.”
As we all know, Technology sector has become an important part of the global economy. We suspect the current bull rally as well as the longer-term 10-year bull run is heavily dependent on the actions of this influential group.
The S&P Technology sector is 24.19% of the overall SPX Index from a market capitalization perspective. The second largest S&P 500 market cap weighted sector is Healthcare (13.79%), followed by Financials (12.60%) and then Communication Services (10.47%). It is also interesting that after the rebalancing of the S&P Communication Services in late-2018 over half of the sector’s market cap is comprised of 5 large cap technology-based companies including Facebook (FB – 18.92%), Alphabet (GOOGL – 12.17% and GOOG – 12.15%), Netflix (NFLX – 5.18%), and Activision Blizzard (ATVI – 4.23%). The combined S&P Technology and Communications Services sectors is currently 34.66% of the entire SPX.
It is reasonable to be concerned about the sharp market rally in Technology and Communication stocks over the past few years. After all, just before the Tech/Telecom bubble burst in 2000 S&P Technology was 33% and Telecom was around 9% of the overall market capitalization of SPX. However, we would also like to remind investors and traders that there have been four major Technology Revolutions. With each of these technology revolutions there have been a dramatic increase in productivity and efficiency in the marketplace. These revolutions have led to the proliferation of new and creative sub-industries. It has spurred on even faster and stronger long-term economic growth and in turn have led to long-term bull trends in stocks.
For instance, Technology Revolution 1 (Mainframe technology), Revolution 2 (Personal Computer – PC), Revolution 3 (Internet and Wireless technology), and the current Technology Revolution 4 (artificial intelligence, robotics, cloud computing, big data, quantum computing, internet of things, 5G, autonomous vehicles, and etc.). So, what are the technical outlooks of the S&P Technology and Telecommunication Services sectors this year and into the years ahead?
Attached below are the near-term as well as intermediate-to-longer term technical outlooks on S&P Technology sector. After all, the sustainability of the current stock market rally as well as the future bull rally is all about Technology.