Market Insights

The year 2017 was undeniably dominated by Technology. Megacaps like Apple (AAPL), Facebook (FB) Alphabet (GOOGL) climbed to new highs. Semiconductors giants like Micron (MU) and Nvidia (NVDA) weren’t far behind as foundries basked in record orders from datacenters, AI firms and smart phones. Then there’s Amazon.com (AMZN) …  technically a consumer stock and not tech… it’s taking over the world, too.

But some traders may wonder if the good times will continue in 2018. Sticking their fingers in the air they might have felt some changes in direction during November and December.

The first potential warning sign is relative strength — how the sector’s done against the overall market. Things look great on a year-to-date basis, with Technology up more than 30 percent versus the S&P 500’s 20 percent gain. But the it’s down slightly in the last month despite the broader index advancing more than 2 percent.

Breadth, or the behavior of individual companies, hasn’t been so hot either. Barely one-third of Tech companies in the S&P have beat the benchmark in the last month. Ironically this occurred at a time when breadth in the overall market has actually improved. Are investors looking for opportunities in new places?

Then there’s the news cycle. AAPL’s under fire for dumbing down its phones, reports of slowing orders, and failing to deliver its new HomePod smart speaker in time for Christmas.¹ Tesla Motors (TSLA) is also facing worries about Model 3 production delays and a potentially bearish “Death Cross” on its chart. (That’s when the 50-day moving average falls below the 200-day MA.) Even when the stories are positive, investors aren’t necessarily jumping for joy… just look at how MU failed to hold gains on the heels of a great quarter last week.²

Meanwhile, Energy, Metals, Financials and Industrials, have been rousing. They’re more cyclical, with the potential to benefit from faster economic growth. And if you haven’t noticed areas like construction and manufacturing have been surprising to the upside for months.³ Throw on top of that potential of further gains from the recent tax cuts, and investors may be in the midst of a bigger rotation into neglected sectors.

To top it off, international stocks — the ultimate value play based on metrics like price-to-earnings and price-to-book ratios — came back to life in December after a mid-year surge. With the U.S. dollar showing few signs of a bounce, investors may find it hard to avoid global indexes in 2018.

1. Reuters: Apple faces lawsuits after saying it slows down aging iPhones. 12/26/17. Bloomberg: Analysts Cut iPhone X Shipment Forecasts, Citing Lukewarm Demand. 12/25/17. CNBC: Apple missed ‘easy money’ by failing to ship the HomePod. 12/26/17.

2. Marketwatch.com: Micron shares rally after hours following earnings, outlook beat. 12/20/17.

3. RTTNews: U.S. Industrial Production Climbs 0.9% In October, More Than Expected. 11/16/17. USA Today: ISM manufacturing index contracts slightly. 12/1/17. Marketwatch: Philly Fed index shows accelerating factory momentum in December. 12/21/17. 24/7 Wall Street: ISM and PMI Readings Look Strong for November, but Under Expectations. 12/1/17. RTTNews: U.S. Construction Spending Jumps 1.4% In October, Much More Than Expected. 12/1/17.