Market strategists from Carson Research caution that the recent broadening of stock market gains away from technology companies into defensive sectors mirrors the rotation seen during the dot-com bubble, warning investors to “be careful what you wish for.”
Recent Market Divergence
Chief Market Strategist Ryan Detrick and Chief Macro Strategist Sonu Varghese highlighted a recent trading session where the broader index declined while a majority of individual stocks advanced.
Varghese noted that on a recent Thursday, 324 out of 500 S&P 500 stocks gained. However, Varghese stated the S&P 500 fell 1.4%, and technology was down 3.3%.
He stated that the advancing stocks were led by defense, consumer staples, utilities, and healthcare. Addressing the desire for wider market participation beyond technology, Varghese warned, “Be careful what you wish for. You get more breadth, but do you want that to be led by defensives?”
Detrick noted that on the same day, the equal-weight S&P 500 outperformed the capitalization-weighted index by almost 2%. Detrick said it was the “best breadth day on a 1% down day” seen recently.
Emphasizing the necessity of the technology sector, Detrick stated, “You need tech leadership.” Detrick added that technology has been a top-performing sector in almost every bull market over the last 100 years.
Historical Parallels to the Dot-Com Era
Varghese compared the current market conditions to the early 2000s. He stated, “The dot-com bubble… it didn’t end with a bust, right? It ended with rotation.”
According to Varghese, between April 2000 and December 2000, the S&P 500 fell 11%, and technology dropped 48%. During that same period, Varghese noted that utilities were up 46%, financials gained 23%, and consumer staples rose 41%.
Pointing to this historical period, Varghese warned that an increase in market breadth led by defensive stocks could be a negative signal for the market. “That was a rotation,” Varghese said. “I’m not saying we’re in that now, but that’s my ‘be careful what you wish for.’”
How Has the Stock Market Performed?
The S&P 500 index has advanced 12.81% year-to-date. Similarly, the Nasdaq Composite index was up 17.43%, and the Dow Jones gained 8.98% YTD.
On Tuesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq-100, respectively, closed higher. SPY rose 0.56% to $769.66, while QQQ advanced 1.27% to $721.25. Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA), ended 0.059% higher at $523.28.
On Wednesday, SPY was up 0.36%, QQQ was 0.37% higher, and DIA rose 0.04%.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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