Big Tech was getting slammed after disappointing earnings from Microsoft and Alphabet, but strategists say the market has not been as dependent on the sector as it has been in the past to drive overall gains. Strategists have been watching to see if the stock market lows hit on Oct. 13 will be the low for the current cycle, or whether it is just a low in a bear market. The performance of stocks since then shows a different type of leadership, and some of those names may be the leaders of the next move higher. “Energy has been strong all year. The move off the lows has been driven by sectors that have nothing to do with tech,” said Scott Redler, chief strategic officer of T3 Live. He said financials and airlines also helped drive the market higher. But strategists also say tech will ultimately have to participate for stocks to continue to make real gains. “If tech delivers, we would go further faster, but if it doesn’t deliver it will be hard to get past 4,000, 4,100 on the S & P 500. That would be a valuation ceiling,” said Redler. Alphabet was down more than 9% on Thursday, and Microsoft closed down 7.7%. Both stocks had set new lows as the S & P 500 touched a low of 3,491 on Oct. 13. After Wednesday’s closing bell, Meta Platforms plunged more than 18% during after hours trading on disappointing earnings and a weaker forecast. But the overall market was higher on Thursday even as shares of the Facebook-parent cratered. A climb from the Oct. 13 bottom? Oppenheimer technical analyst Ari Wald said there have been 23 bull cycles since 1932, and technology outperformed in 20 of them. “It is the most offensive sector. … If we’re right about our bull market call, it would make sense for technology to participate and do well through that,” he said. Wald has said the Oct. 13 bottom could be signaling a new bull market has begun. He envisions energy continuing to lead, and industrials will continue to rise and be a leader. Technology is a third sector he expects to see ultimately lead. “They’re not the leaders now. They still offer long-term rotation potential because I think they take on a leadership role once rates moderate,” Wald said. Apple, which reports earnings Thursday, has held up far better than many other tech names and as of Wednesday afternoon was up about 8.1% for October. The stock fell nearly 2% in Wednesday’s tech rout. Amazon, which is also reporting after the bell Thursday, is up 2.3% for the month, although the e-commerce giant is down more than 30% in 2022. The Technology Select Sector SPDR Fund ETF, which represents the S & P information technology sector, is up 5.8% in October. The Communications Services Select Sector SPDR is up 4.8% for the month. The communications services sector includes Meta and Alphabet. In contrast, the Energy Select Sector SPDR Fund is up 23% in October, and the Industrial Select Sector SPDR Fund is up more than 10%. Looking for healthy signs of breadth “I think it’s perfectly normal to see other stocks picking up the slack in a new leg higher. That’s what you need to see,” said Bespoke co-founder Paul Hickey. He said tech has not performed poorly before Wednesday. Apple has held up from its lows, and it is in line with the market. “One of the things we’ve been highlighting is the fact that at the most recent low earlier this month, you saw the S & P fall 4% below the June lows, but the percentage of stocks declining was not expanding,” said Hickey . “It was smaller than the number we saw in June. It just shows you there’s better breadth.” He said there is a debate in the market about whether it’s positive or negative for big cap tech to be the leader, since there are so few mega cap stocks leading. “You want to see broad participation so a handful of stocks aren’t leading the market. That’s a healthy sign of internal breadth,” he said. He said the earnings week for Big Tech can be rocky for the market if there are misses. Investors are watching for earnings from Apple after the closing bell Thursday. “If it doesn’t do well, it will have an impact on the market just because of its sheer weight, but I don’t think Apple is the be all and end all for the market,” he said. Hickey said one sector that looks set to move higher is industrials. “Heading into earnings season, one of the sectors with the highest percentage of negative revisions was industrials,” he said. “The pace of analysts’ revisions tends to be inversely correlated to the market during earnings season.”
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