The Chart of the Week series intends to share a theme, idea, or event that caught my eye—and nowhere was that more evident this week than in the remarkable outperformance of the Technology sector relative to the average stock, as measured by the S&P 500 Equal-Weighted Index. The surge was mainly driven by semiconductors, with Nvidia’s market capitalization crossing the $5 trillion mark and setting the tone for the sector.
On Wednesday, the rolling 5-day rate of change spread between the S&P 500 Technology sector and the S&P 500 Equal-Weighted Index reached 8.3%—a level of relative strength not seen since the Dotcom era.
Although this phenomenon appeared frequently during the 2000-02 bear market and in a few other periods, I wanted to focus on the occurrences between 1995 and the March 2000 peak, marked by the red dots in the chart. As the signal dates indicate, most instances took place during the final year of the rally.
Exactly what inning we’re in for the AI era, when measured against the Dotcom era, remains anyone’s guess.
The rolling 5-day rate of change spread between the S&P 1500 Semiconductors and the S&P 500 Equal-Weighted Index reached 13.9%, a level achieved three other times since March 2020. Before those cases, this kind of short-term spike in relative performance was primarily a feature of the Dotcom period.
The final two charts display a relative ratio comparing semiconductors to the Equal-Weighted S&P 500, along with a chart of semiconductors overlaid with a linear regression line. I’ve omitted comments so you can draw your own conclusions. The visuals are meant to provide context, letting the data speak for itself.
I’m sharing the following excerpt from a report on the technology sector published three weeks ago so my view regarding the sector is clear.
“The AI arms race has thrust the debate over a potential bubble back into the spotlight, as investors grapple with echoes of the Dotcom era. Massive capital expenditures, soaring valuations, and intense competition among technology giants have fueled comparisons to past speculative booms. Yet, while questions about sustainability are fair, the market’s own message remains clear: leadership trends and momentum continue to favor technology. Despite the sector’s substantial rally, history suggests the uptrend will persist as strength often begets more strength. Of course, all innovation cycles eventually come to an end, and when that time comes, we’ll let the most intelligent guy in the room—Mr. Market—guide our decision on when to abandon the trade”.
Each Chart of the Week highlights a theme, idea, or historic event that stood out to us. If you find it interesting, feel free to share it with friends or colleagues.
Visit www.tpmarketresearch.com to learn more about our research offering.
