Stocks are getting hammered.
Or are they?
It depends on where you look.
Last week, the State Street Technology Select Sector ETF (XLK) was the worst-performing of the 11 major S&P 500 Index sector funds, dropping 5.3% and dragging the broader market with it.
But beneath the surface, the picture was far more nuanced.
Several AI infrastructure leaders continued to show resilience. Applied Materials (AMAT) – a holding in Infinite Momentum’s Tech Titans portfolio since September – actually finished the week higher. We’re up more than 220% since our system first identified the opportunity.
And it wasn’t just AI that impressed.
Airbnb (ABNB), another Tech Titans holding, finished the week up 2.2%. And we’re up more than 8% since I recommended it about a month ago.
Meanwhile, outside of tech, strength was widespread.
The State Street Healthcare Select Sector ETF (XLV) capped off a blistering month, up nearly 8%.
Real estate, utilities, consumer staples, energy, industrials and financials all finished the week in positive territory.
In other words, the bull market didn’t disappear… if you know where to look.
I’ve said all year that “as goes tech, so goes the S&P 500.” We’re seeing more proof of that today.
Given the sector’s enormous weighting in the index, it’s virtually impossible for the S&P 500 Index to mount a sustained rally without heavy participation from tech stock.
That’s OK.
But remember an old Wall Street truth: the stock market is a market of stocks..
If your portfolio consists primarily of the Mag 7 and little else, recent volatility has probably been uncomfortable. But investors who are willing to look beyond the crowded mega-cap trade are finding plenty of opportunities.
That’s exactly what we do.
We’re active traders.
We invest in the stocks that my system indicates are statistically likely to outperform.
And we certainly don’t restrict ourselves to the same handful of over-owned tnames that dominate most portfolios.
So, let’s take a look at what’s working…
Key Insights:
- Large-cap tech stocks really struggled last week.
- Weakness in tech is weighing down the broader market.
- Previously abandoned sectors like health care are finally getting attention.
Health Care Looking Strong
Health care led the pack last week. So, I ran my customary screen of the biggest movers in the sector that were still within 10% of their 52-week highs last week. The idea is to look for solid, market-leading stocks that are getting stronger.
Here’s what I came up with:
It seems that tech isn’t the only sector capable of producing massive price jumps!
Bio-Techne Corp (TECH) rose more than 22% last week on news that it would be acquired by Merck & Co (MRK). But Merck was also up big, as was stodgy old dinosaur Johnson & Johnson (JNJ).
What’s especially intriguing about the strong move in health care stocks is the lack of a major catalyst driving it. It appeared to primarily be a case of aggressive sector rotation, as investors pulled out of large-cap tech stocks and rolled the proceeds into more “old economy” pockets of the economy.
Whether or not the move is sustainable remains to be seen.
But my system is advising caution here.
Of the nine biggest movers last week, only three rate as “Bullish” on my Green Zone Power Ratings system. The rest are “Bearish” or “Neutral.”
I’ll be doing a deeper dive into the sector tomorrow.
But for now, the takeaway is this: Investors are indeed looking beyond tech and the Mag 7.
That doesn’t mean any old stock will do. We still need to be choosy.
Should We Buy the Dip in Tech?
We can’t ignore tech.
It’s the largest sector by market cap and effectively dominates the market. So, after last week’s thrashing, might there be some value in the wreckage?
I ran my customary screen of the sector’s biggest losers for the week that are still trading within 10% of their 52-week lows. The idea is to find beaten-down gems that look poised to recover.
After the massive rally this year, finding beaten-down tech stocks within 10% of their 52-week low was impossible, so I loosened that criteria. Here’s what I came up with:
It was a flat-out brutal week for tech stocks. Oracle Corp (ORCL) was down close to 20%, and QUALCOMM (QCOM) wasn’t far behind it.
Unfortunately, neither of those stocks rates as “Bullish” on my Green Zone Power Ratings system. In fact, not a single stock on the list does. All nine rate as “Bearish” or “Neutral.”
Does this mean we should cut all tech and run for the hills?
Absolutely not!
But it does mean that we need to be selective and disciplined.
I am heavily invested in the tech sector, particularly in my Tech Titans portfolio. The difference is that I know exactly when and how I’ll sell.
My Infinite Momentum model is refreshed every four weeks. If a stock starts to lose momentum or fails any of the other criteria that go into the system, it gets replaced.
There’s no handwringing. No difficult decision making. Just a systematic rules-based process that has consistently kept us on the right side of major market trends.
That’s why periods like this don’t concern me. While many investors are trying to guess where the market goes next, we’re simply following the data.
To good profits,
Adam O’Dell
Editor, What My System Says Today
