by Qontigo
- Technology strong, but breadth weak in the US market
- No sector has dominated non-US returns, and more stocks have beaten the index
Technology strong, but breadth weak in the US market
The recent strength in technology stocks has made the headlines (see, for example, “Tech Stock Rally Leaves Small-Caps in the Dust”, Wall Street Journal, May 28, 2023 and “Stock market seeing narrowest rally since 1999 thanks to AI-led tech surge”, Market Watch, May 27, 2023, to name just a couple recent articles). And we certainly see the same phenomena in our data. One point of note, however, is the difference in technology’s dominance in the US versus outside the US.
Technology has accounted for at least half of the US market’s return over the past week, month, three months, six months and 12 months in the US, with no other sector even coming close to having a similar impact.
See chart from the US Equity Risk Monitor, 26 May 2023:
At the same time, the US market has been extremely narrow. 50% or more of the names in the STOXX® USA 900 have beaten the overall market in only two of the past 16 five-day periods, with some periods seeing only 30% of the names in the index with a higher return. The average five-day breadth over this period was 40%. Recent results stand in sharp contrast to the prior 16 five-day periods, when breadth averaged more than 56%.
In addition, for the month of May to date, Information Technology showed greater breadth than other sectors. It was the only sector to see roughly 50% of names in the sector outpace the market, whereas most other sectors’ breadth was 30% or even less. To investors not invested in these names the rally likely seems much more anemic, or possibly non-existent.
See chart from the US Equity Risk Monitor, 26 May 2023:
The following chart is not included in the Risk Monitor reports but is available on request:
No sector has dominated non-US returns, and more stocks have beaten the index
The strength in Technology is clearly a US phenomenon, as the incidence of sector dominance is far different outside the US. For the STOXX® Global Developed Markets ex-USA index, no sector has dominated returns, but others have contributed more than Technology. (Granted, the weight of Technology is much lower, just 7.6% vs. about 28% in the US, but the return for the sector in the past month in Developed ex-US was also about half that of the US). The non-US index, which had been outperforming the US index this year until returns have converged recently, has also seen “better” breadth (in that more stocks have managed to beat the index), with an average five-day breadth for the most recent 16 weeks of 48% and no period with breadth of less than 40%.
See charts from the Developed Markets ex-US Equity Risk Monitor, 26 May 2023:
